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February 8 , 1979 To the Addressee: Enclosed are copies of pamphlets containing Regulation Q, "interest on Deposits, and Regulation Y, "Bank Holding Companies," of the Board of Governors of the Federal Reserve System. The pamphlet containing Regulation Q, as amended effective December 6 , 1978* replaces the December U, 1975 printing of the regulation, together with all amendments to the regulation through December 6 , 1978. Please retain the supplement effective June 1 , 1978. The pamphlet containing Regulation Y, as amended effective April 5, 1978, replaces the June 2k , 197U printing of the regulation, together with all amendments to the regulation through April 5» 1978. Please retain the amend ment effective January 1 , 1979. Additional copies of the two pamphlets are available upon request. Circulars Division FEDERAL RESERVE BANK OF NEW YORK BOARD OF GOVERNORS of the FEDERAL RESERVE SYSTEM IN T E R E S T O N D E P O SITS REGULATION Q (1 2 C F R 2 1 7 ) A s am en d ed effective D e c e m b e r 6 , 1 9 7 8 A n y inquiry relating to this regulation should be addressed to the F ederal R eserve B ank o f the F ederal R eserve D istrict in w hich the inquiry arises. DECEMBER 1978 CON TEN TS P age P age Sec . 217.0— Scope of P art ....................... Sec . 217.4— Pa y m e n t 3 of T im e D eposits Before M a t u r i t y .............................................. Sec . 217.1— D efinitions ............................... (a) (b) (c ) (d) (e) (f) Demand deposits............................ Time deposits ................................ Time certificates of d eposit............. Time deposits, open account . . . . Savings deposits................................ Deposits as including certain promissory notes ....................... (g) Multiple maturity timedeposit . . . . 3 3 3 3 3 4 4 5 ^ Sec . Sec. 217.2— D emand D eposits ...................... 5 (a) Interest prohibited............................ (b) Meaning of interest ....................... 5 5 S ec. 217.3— I nterest on T ime and S avings D eposits ............................................. 5 (a) Maximum rate ................................ (b ) Modification of contracts to con form to regulation........................ (c) Member banks limited to maximum rate for State b a n k s ................... (d) Grace periods in computing interest on savings deposits..................... (e) Computation of interest................. (f) No interest after maturity or ex piration of n o t ic e ........................ (g) Time deposits of foreign govern mental entities and international organizations ................................ [Sec . 217.7— Su p p l e m e n t , M a x im u m R ates and Savings D eposits , is printed separately.] (a) Time deposits payable on a specified date . . ; ........................................ (b) Time deposits payable after a spe cified period ................................ (c ) Time deposits payable after a spe cified n o tic e .................................. (d) Penalty for early withdrawals......... (e) Disclosure of early withdrawal ^ p en a lty.......................................... (f) Loans upon security of time deposits 5 5 6 6 6 6 6 of 217.5 — W ithdrawal posits of 7 7 7 7 7 8 8 Savings D e .................................................................. (a) Requirements regarding notice of withdrawal .................................... (b) Loans on security of savings deposits (c) Manner of payment of saving deposits ........................................ 8 8 8 8 Sec. 217.6— A dvertising of Interest on D eposits .............................................................. 9 (a) Annual rate of simple interest----(b) Percentage yields based on one year (c) Percentage yields based on periods in excess of one y e a r ................... (d) Time or amount requirements . . . . (e) Penalty for early withdrawals . . . . (f) Profit ................................................. (g) Accuracy of advertising................. (h) Solicitation of deposits for banks . . (i) Negotiable orders of withdrawal . . . Statutory 9 9 9 9 9 10 10 10 10 A p p e n d i x ......................................... 11 I nterest Payable by M em ber B anks on T im e REGULATION Q (12 CFR 217) A s am en d ed effective D e c e m b e r 6 , 1 9 7 8 IN T E R E S T O N D E P O SIT S* SECTION 217.0— SCOPE OF P A R T (1 ) On a certain date, specified in the instru ment, not less than 30 days after date o f the deposit, or (2 ) At the expiration o f a certain specified time not less than 30 days after the date o f the instrument, or (3 ) Upon notice in writing which is actually required to be given not less than 30 days before the date of repayment,*1 and (4 ) In all cases only upon presentation and surrender o f the instrument. (d) T im e deposits, op en accoun t. The term “ time deposit, open account” means a deposit, other than a “ time certificate o f deposit” , with respect to which there is in force a written con tract with the depositor that neither the whole nor any part o f such deposit may be withdrawn, by check or otherwise, prior to the date o f matu rity, which shall be not less than 30 days after the date o f the deposit,2* or prior to the expira (a ) This Part is issued under authority o f pro visions o f section 19 o f the Federal Reserve Act which, together with related provisions o f law, are cited in the Appendix. (b ) This Part relates to the payment o f de posits and interest thereon by member banks o f the Federal Reserve System and not to the com putation and maintenance o f the reserves which member banks are required to maintain against deposits. The rules concerning reserves o f member banks are contained in Part 204 o f this chapter. (c ) The provisions o f this Part do not apply to any deposit which is payable only at an office o f a member bank located outside o f the States o f the United States and the District o f Columbia. SECTION 217.1— DEFINITIONS (a) D e m a n d deposits. The term “ any deposit which is payable on demand” , hereinafter referred to as a “ demand deposit” , includes every deposit which is not a “ time deposit” or “ savings deposit” , as defined in this section. (b) T im e deposits. The term “ time deposits” means “ time certificates o f deposit” and “ time deposits, open account” , as defined in this section. (c) Time certificates of deposit. The term “ time certificate o f deposit” means a deposit evidenced by a negotiable or non-negotiable instrument which provides on its face that the amount o f such deposit is payable to bearer or to any speci fied person or to his order: * The text corresponds to the Code o f Federal Regula tions, Title 12, Chapter II, Part 217; cited as 12 CFR 217. The words “ this Part’’, as used herein, mean Regulation Q. 1A deposit with respect to which the bank merely re serves the right to require notice of not less than 30 days, before any withdrawal is made is not a “ time certificate of deposit” within the meaning o f the above definition. 2 Deposits, such as Christmas club accounts and vaca tion club accounts, which are made under written con tracts providing that no withdrawal shall be made until a certain number o f periodic deposits have been made during a period o f not less than 3 months constitute “ time deposits, open account” , even though some o f the deposits are made within 30 days from the end of the period. 3 § 217.1 R E G U L A T IO N Q primarily for religious, philanthropic, charitable, educational, fraternal, or other similar purposes and not operated for profit. Deposits in which any beneficial interest is held by a corpo ration, partnership, association or other organiza tion operated for profit or not operated primarily for religious, philanthropic, charitable, educational, fraternal, or other similar purposes may not be classified as deposits subject to negotiable orders tion o f the period o f notice which must be given by the depositor in writing not less than 30 days in advance o f withdrawal.3 (e) Savings deposits. T h e term “ savings de posit” means a deposit— (1) That consists o f funds deposited to the credit o f or in which the entire beneficial interest is held by one or more individuals, or o f a corporation, association, or other organization operated primarily for religious, philanthropic, charitable, educational, fraternal, or other similar purposes and not operated for p rofit;4 or that consists o f funds deposited to the credit o f or in which the entire beneficial interest is held by the United States, any State o f the United States, or any county, municipality, or political sub division thereof, the District o f Columbia, the Commonwealth o f Puerto Rico, the Virgin Islands, American Samoa, Guam, or political subdivision thereof; or that consists o f funds deposited to the credit of, or in which any beneficial interest is held by a corporation, asso ciation, or other organization not qualifying above to the extent such funds do not exceed $150,000 per such depositor at a member bank; o f withdrawal. (f) D ep osits including certain p rom issory For the purposes o f this Part, the term “ deposits” also includes any member bank’s liability on any promissory note, acknowledgment o f advance, due bill, or similar obligation (written or oral) that is issued or un dertaken by a member bank principally as a means o f obtaining funds to be used in its banking business, except any such obligation that: (1 ) Is issued to (o r undertaken with respect to) and held for the account o f (i) a bank or an institution the time deposits o f which are exempt from § 217.7 Pursuant to § 217.3(g), or (ii) the United States or an agency thereof, or the Government Development Bank for Puerto R ico; (2) Evidences an indebtedness arising from a transfer o f direct obligations of, or obligations that are fully guaranteed as to principal and in terest by, the United States or any agency thereof that the bank is obligated to repurchase; and (2 ) With respect to which the depositor is not required by the deposit contract but may at any time be required by the bank to give notice in writing o f an intended withdrawal not less than 30 days before such withdrawal is made 5 and which is not payable on a specified date or at the expiration o f a specified time after the date o f deposit. (3 ) In those States where banks are permitted to offer deposits subject to negotiable orders of withdrawal, such deposits may be maintained if such deposits consist o f funds deposited to the credit o f or in which the entire beneficial interest is held by one or more individuals, or a corpo ration, association, or other organization operated (3 ) (i) Bears on its face, in bold-face type the following: “ T h is obligation is n ot a deposit and is not insured b y the F edera l D e p o sit Insurance C o r p oration” ; is subordinated to the claims o f depositors, is un secured, and is ineligible as collateral for a loan by the issuing bank and also expressly states said provisions on its face; has an original maturity o f at least seven years, or, in the case o f an obliga tion or issue that provides for any type o f sched uled repayments o f principal, has an average maturity6 o f at least seven years 7 and provides that once any such repayment o f principal be gins, all scheduled repayments shall be made at least annually and the amount repaid in each 3 A deposit with respect to which the bank merely re serves the right to require notice o f not less than 30 days before any withdrawal is made is not a “ time deposit, open account” , within the meaning of the above definition. 4Deposits in joint accounts of two or more individuals may be classified as savings deposits if they meet the other requirements of the above definition. Deposits o f a partnership operated for profit may also be classified as savings to the extent such deposits do not exceed $150,000 per partnership at a member bank. s The exercise by the bank of its rights to require such notice shall not cause the deposit to cease to be a savings deposit. as notes and other ob ligations. 6 The “ average maturity” o f an obligation or issue re payable in scheduled periodic payments shall be the weighted average of the maturities of all such scheduled repayments. 7 In a serial issue the member bank may offer no note with maturity of less than five years. 4 §§ 217.1-217.2—217.3 R E G U L A T IO N Q year is no less than in the prior year; is issued subject to a requirement that no repayment (other than a regularly scheduled repayment already ap proved by the appropriate Federal bank regula tory agency), including but not limited to a pay ment pursuant to acceleration o f maturity, may be made without the prior written approval o f the appropriate Federal bank regulatory agency; s is in an amount o f at least $500, Except, That the ap propriate Federal bank regulatory agency may approve the issuance o f an obligation that is less than $500 if such lesser amount is necessary (a ) to satisfy the preemptive rights o f shareholders in the case o f a convertible debt obligation, (b) to maintain a ratable unit offering to holders o f pre emptive rights in the case o f an obligation issued exclusively as part o f a unit including shares o f stock which are subject to such preemptive rights, or (c ) to satisfy shareholders’ ratable claims in the case o f an obligation issued wholly or partially in exchange for shares o f voting stock or assets pursuant to a plan o f merger, consolidation, re organization, or other transaction where the issuer will acquire either a majority o f such shares o f voting stock or all or substantially all o f the assets o f the entity whose assets are being acquired; and has been approved by the appropriate Federal bank regulatory agency as an addition to the capital structure o f the issuing bank; or (i) meets all o f the requirements in the preceding clause except the maturity requirement or the require ment that scheduled repayments shall be in amounts at least equal to those made in a previous year; and with respect to which the appropriate Federal bank regulatory agency has determined that exigent circumstances require the issuance o f such obligations without regard to the provi sions o f this Part; or (ii) was issued or publicly offered before June 30, 1970, with an original maturity o f more than two years; or This paragraph shall not, however, affect (i) any instrument issued before June 27, 1966, or (ii) any instrument that evidences an indebtedness arising from a transfer o f assets under repurchase agreement issued before July 25, 1969. (g) M u ltip le m aturity tim e deposit. The term “ multiple maturity time deposit” means any time deposit (1 ) that is payable at the depositor’s option on more than one date, whether on a specified date or at the expiration o f a specified time after the date o f deposit (e.g., a deposit pay able at the option o f the depositor either three months or six months after the date o f deposit), (2 ) that is payable after written notice o f with drawal, or (3 ) with respect to which the under lying instrument or contract or any informal un derstanding or agreement provides for automatic renewal at maturity. SECTION 217.2— D E M A N D DEPOSITS (a) Interest prohibited. Except as provided by section 19 o f the Federal Reserve Act, no member bank o f the Federal Reserve System shall, directly or indirectly, by any device whatsoever, pay any interest on any demand deposit. (b) M ea n in g o f interest. Within this Part, any payment to or for the account o f any depositor as compensation for the use o f funds constituting a deposit shall be considered interest. SECTION 217.3— INTEREST ON TIM E A N D SAVINGS DEPOSITS (a) M a x im u m rate. Except as provided in this section, no member bank shall, directly or in directly, by any device whatsoever, pay interest on any time or savings deposit at a rate in excess o f such applicable maximum rate as the Board of Governors o f the Federal Reserve System shall (4) Arises from a borrowing by a member bank prescribe from time to time in § 217.7. In as from a dealer in securities, for one business day, certaining the rate o f interest paid, the effects o f proceeds o f a transfer o f deposit credit in a o f compounding o f interest may be disregarded. Federal Reserve Bank (o r other immediately (b) M od ification o f contracts to c o n fo rm to available funds), comm only referred to as “ Fed regulation. N o certificate o f deposit or other con eral funds” , received by such dealer on the date tract shall be renewed or extended unless it be o f the loan in connection with clearance o f securi modified to conform to the provisions o f this Part, ties transactions.8 and every member bank shall take such action 8 For the purposes o f this Part, the “ appropriate Fed as may be necessary, as soon as possible con eral bank regulatory agency” is the Comptroller of the sistently with its contractual obligations, to bring Currency in the case of a national bank and the Board o f Governors in the case of a State member bank. all o f its outstanding certificates o f deposit or 5 § 217.3 R E G U L A T IO N Q deposit will thereafter again be subject to the contract or requirements applicable to such de posit, the deposit will again constitute a time deposit or savings deposit, as the case may be, after the date upon which such advice is received by the bank. On each certificate, passbook, or other document representing a time deposit, the bank shall have printed or stamped a conspicuous statement indicating that no interest will be paid on the deposit after the maturity date or, in the case o f a time deposit that is automatically re newable, a conspicuous statement indicating that the contract will be renewed automatically upon maturity, and indicating the terms o f such other contracts into conformity with the provi sions o f this Part. (c) M e m b e r banks lim ited to m a x im u m rate fo r The rate o f interest paid by a member bank upon a time deposit or savings deposit shall not in any case exceed (1 ) the applicable maxi mum rate prescribed pursuant to the provisions o f paragraph (a) o f this section, or (2) the appli cable maximum rate authorized by law to be paid upon such deposits by State banks or trust com panies organized under the laws o f the State in which such member bank is located, whichever State banks. may be less. (d) G r a c e periods in co m p u tin g interest on sav A member bank may pay interest on a savings deposit received during the first 10 calendar days o f any calendar month at the applicable maximum rate prescribed pursuant to paragraph (a ) of this section calculated from the first day o f such calendar month until such de posit is withdrawn or ceases to constitute a savings deposit under the provisions o f this Part, which ever shall first occur; and a member bank may pay interest on a savings deposit withdrawn dur ing its last 3 business days o f any calendar month ending a regular quarterly or semiannual interest period at the applicable maximum rate prescribed pursuant to paragraph (a ) o f this section cal culated to the end o f such calendar month. renewal. ings deposits. (g) (e) C o m p u ta tio n o f interest. In the computation o f simple daily interest, the time factor should be expressed as a fraction in which the actual number o f days the funds earn interest is the numerator, and the denominator is either 360, 365, or, in a leap year, 366. However, when a deposit matures in one month (or multiples thereof), the bank may use 30 days in the numerator (or corre sponding multiples thereof). (f) N o interest after m aturity o r expiration o f After the date o f maturity o f any time deposit, such deposit is a demand deposit, and no interest may be paid on such deposit for any period subsequent to such date. After the expira tion o f the period o f notice given with respect to the repayment o f any time deposit or savings deposit, such deposit is a demand deposit and no interest may be paid on such deposit for any period subsequent to the expiration o f such notice, except that, if the owner o f such deposit advise the bank in writing that the deposit will not be withdrawn pursuant to such notice or that the n otice. T im e deposits o f foreign governm ental en international organizations. Section 217.7 does not apply to the rate o f interest that may be paid by a member bank on a time deposit having a maturity o f 2 years or less and repre senting funds deposited and owned by (1 ) a foreign national government, or an agency or in strumentality thereof 9 engaged principally in ac tivities which are ordinarily performed in the United States by governmental entities, (2 ) an international entity o f which the United States is a member, or (3 ) any other foreign, international, or supranational entity specifically designated by the Board as exempt from § 217.7. All certificates o f deposit issued by member banks to such enti ties on which the contract rate o f interest exceeds the maximum prescribed under § 217.7 shall pro vide that (1 ) in the event o f transfer, the date o f transfer, attested to in writing by the transferor, shall appear on the certificate, and (2 ) the maxi mum rate limitations o f § 217.7 in effect at the date o f issuance o f the certificate shall apply to the certificate for any period during which it is held by a person other than an entity exempt therefrom under the foregoing sentence.10 Upon the presentment o f such a certificate for payment, the bank may pay the holder the contract rate tities and 9 Other than States, provinces, municipalities or other regional or local governmental units, or agencies or in strumentalities thereof. 10 A new certificate not maturing prior to the maturity date of the original certificate may be issued by the mem ber bank to the transferee, in which event the original must be retained by the bank. The new certificate may not provide for interest after the date of transfer at a rate in excess of the applicable maximum rate authorized by § 217.7 as o f the date of issuance o f the original certifi cate. 6 R E G U L A T IO N Q o f interest on the deposit for the time that the certificate was actually owned by an entity so exempt. SECTION 217.4— P A Y M E N T OF TIM E DEPOSITS BEFORE M A T U R IT Y (a) T im e deposits payable on a specified date. N o member bank shall pay any time deposit, which is payable on a specified date, before such specified date, except as provided in paragraph (d ) o f this section. (b) T im e deposits payable after a specified period. N o member bank shall pay any time deposit, which is payable at the expiration o f a certain specified period, before such specified period has expired, except as provided in para graph (d ) o f this section. (c) T im e deposits payable after a specified N o member bank shall pay any time deposit, with respect to which notice is required to be given a certain specified period before any withdrawal is made, until such required notice has been given and the specified period thereafter has expired, except as provided in paragraph (d ) o f this section. n otice. (d) P enalty fo r early w ithdraw als. Where a time deposit, or any portion thereof, is paid be fore maturity, a member bank may pay interest on the amount withdrawn at a rate not to exceed that currently prescribed in § 217.7 for a savings deposit: Provided, That the depositor shall forfeit three months o f interest payable at such rate If, however, the amount withdrawn has remained on deposit for three months or less, all interest shall be forfeited. Where necessary to comply with the requirements o f this paragraph, any interest al ready paid to or for the account o f the depositor shall be deducted from the amount requested to be withdrawn.11 Any amendment o f a time de posit contract that results in an increase in the rate o f interest paid or in a reduction in the 11 The provisions of this paragraph apply to all time deposit contracts entered into after July 5, 1973, and to all existing time deposit contracts that are extended or re newed (whether by automatic renewal or otherwise) after such date, and to all time deposit contracts that are amended after such date so as to increase the rate of interest paid. All contracts not subject to the provisions o f this paragraph shall be subject to the restrictions of § 217.4(d) in effect prior to July 5, 1973, which permitted payment o f a time deposit before maturity only in an emergency where necessary to prevent great hardship to §§ 2 1 7 .3 -2 1 7 .4 maturity o f the deposit constitutes a payment o f the time deposit before maturity. Provided fur ther, That Investment Certificates issued in negotiable form by a member bank pursuant to subpart 3 o f § 217.7(b) may not be paid before maturity. This provision does not prevent a mem ber bank from arranging the sale or purchase o f such a certificate on behalf o f the holder or prospective purchaser o f a certificate issued under that subpart. A member bank may not be paid before maturity. This provision does not prevent a member bank from arranging the sale or purchase o f such a certificate on behalf o f the holder or prospective purchaser o f a certificate issued under that subpart. A member bank may not, however, repurchase such certificates for its own account. Provided further, That a time de posit may be paid before maturity without a re duction or forfeiture o f interest as prescribed by this paragraph in the following circumstances: (1) Where a member bank pays all or a portion o f a time deposit upon the death o f any owner o f the time deposit fu n d s;lla (2) Where a member bank pays all or a por tion o f a time deposit representing funds con tributed to an Individual Retirement A ccount or a Keogh (H .R . 10) plan established pursuant to 26 U.S.C. (I.R.C. 1954) § § 401, 408 when the individual for whose benefit the account is maintained attains age 59!A or is disabled (as defined in 26 U.S.C. (I.R.C. 1954) § 72 (m)(7) or thereafter; or (3) Where a member bank pays that portion o f a time deposit on which Federal deposit insurance has been lost as the result o f the merger o f two or more Federally insured banks in which the depositor previously maintained separate time de posits, for a period o f one year from the date o f the merger. the depositor, and which required the forfeiture of accrued and unpaid interest for a period o f not less than 3 months on the amount withdrawn if an amount equal to the amount withdrawn had been on deposit for 3 months or longer, and the forfeiture of all accrued and unpaid interest on the amount withdrawn if an amount equal to the amount withdrawn had been on deposit less than 3 months. lla For the purposes of this provision, an “ owner” o f time deposit funds is any individual who at the time of his or her death has full legal and beneficial title to all or a portion of such funds or, at the time of his or her death, has beneficial title to all or a portion of such funds and full power of disposition and alienation with respect thereto. §§ 217.4-217.5 R E G U L A T IO N Q Under a time deposit agreement where subsequent deposits reset the maturity o f the entire account, each deposit maintained in the account fo r at least a period equal to the original maturity o f the de posit may be regarded as having matured indi vidually and been redeposited at intervals equal to such period. When a time deposit is payable only after notice, for funds on deposit for at least the notice period, the penalty for early withdrawal shall be imposed for at least the notice period. (e) D isclo su re o f early w ithdraw al p enalty. At the time a depositor enters into a time deposit contract with a member bank, the bank shall pro vide a written statement o f the effect o f the penalty prescribed in paragraph (d) o f this sec tion, which shall (1 ) state clearly that the cus tomer has contracted to keep his funds on deposit for the stated maturity, and (2) describe fully and clearly how such penalty provisions apply to time deposits in such bank, in the event the bank, notwithstanding the Contract provisions, permits payment before maturity. Such statements shall be expressly called to the attention o f the customer. Written statements made with respect to negoti able Investment Certificates issued by a member bank pursuant to subpart 3 o f § 2 1 7 .7 (b ) shall state clearly that no payment before maturity will be permitted under any circumstances. Such state ments shall be expressly called to the attention o f the customer. In addition, every negotiable Invest ment Certificate shall state conspicuously on its face that, “ This time deposit cannot be paid prior to maturity.” (f) L o a n s u p on security o f tim e deposits. A member bank may make a loan to the depositor upon the security o f his time deposit provided that the rate o f interest on such loan shall be not less than 1 per cent per annum in excess o f the rate o f interest on the time deposit. o f withdrawal. If a member bank, without requir ing notice o f withdrawal, pays interest that has accrued on a savings deposit during the preceding interest period, it shall, upon request and without requiring such notice, pay interest that has ac crued during said period on the savings deposits o f every other depositor. N o member bank shall change its practice with respect to the requiring or waiving o f notice o f withdrawal o f savings deposits for the purpose o f discriminating in favor o f or against any depositor or depositors, and no such change o f practice shall be made except pursuant to duly recorded action o f the bank’s board of directors or a properly authorized committee thereof. (b) L o a n s on security o f savings deposits. If it is not the practice o f a member bank to require notice o f withdrawal o f savings deposits, no restrictions are imposed by this Part upon loans by such bank to its depositors upon the security o f such deposits. If it is the practice o f a member bank to require notice o f withdrawal o f a savings deposit, such bank may make loans to a depositor upon the security o f such deposit, but the rate o f interest on such loans shall be not less than 1 per cent per annum in excess o f the rate o f interest paid on such deposit. (c) M a n n e r o f p ay m en t o f savings deposits. (1 ) Subject to the provisions o f subparagraphs (2 ) and (3 ) o f this paragraph, a member bank may permit withdrawals to be made from a sav ings deposit only through payment12 to the deposi tor himself (but not to any other person whether or not acting for the depositor), except (i) where the deposit is represented by a pass book, to any person presenting the passbook;12 (ii) to any executor, administrator, trustee, or other fiduciary holding the savings deposit as part o f a fiduciary estate, or to a person, other than the bank, holding a general power o f attorney granted by the depositor; SECTION 217.5— W ITHDRAW AL (iii) to any person, including the bank, that OF SAVINGS DEPOSITS has extended credit to the depositor on the secu (a) R equ irem en ts regarding notice o f w ith rity o f the savings deposit, where such payment draw al. Whether or not interest is paid, no mem is made in order to enable the creditor to realize ber bank shall require or waive notice o f with upon such security; drawal as to any amount or percentage o f the sav (iv ) pursuant to the order o f a court o f com ings deposit o f any depositor unless it shall simi petent jurisdiction; larly require or waive such notice as to the same amount or percentage o f the savings deposits o f 12 Payment from a savings deposit or presentation of a every other depositor which are subject to the passbook may be made over the counter, through the same contractual provisions with respect to notice mails, or otherwise. 8 §§ 217.5-217.6 R E G U L A T IO N Q (v ) upon the death o f the depositor, to any person authorized by law to receive the deposit; withdrawal for such a deposit shall be entered in the passbook as soon as practicable after with drawal is made. (v i) interest paid to a third person pursuant to written instruction or assignment by the depositor accepted by the bank, and placed on file therein; or SECTION 217.6— A D V E R TISIN G OF IN TEREST ON DEPOSITS (vii) pursuant to nontransferable withdrawal orders or authorizations received from a depositor by a member bank for the payment o f amounts from such deposits to third parties, including the bank (except as prohibited by subparagraph 2), periodically or otherwise. A ny such withdrawal order or authorization that may be honored as a withdrawal request for payment to a third party may, if so authorized by the third party, be honored as a transfer to an account o f such third party. Any form for such withdrawal order or authorization shall contain language in boldface type o f reasonable size to the effect that it is not negotiable or transferable. Every advertisement, announcement, or solici tation relating to the interest paid on deposits in member banks shall be governed by the following rules: (a) A n n u a l rate o f sim ple interest. Interest rates shall be stated in terms o f the annual rate o f simple interest. In no case shall a rate be adver tised that is in excess o f the applicable maximum rate for the particular deposit. (b) P ercentage yields based on one year. Where a percentage yield achieved by compounding in terest during one year is advertised, the annual rate o f simple interest shall be stated with equal prominence, together with a reference to the basis o f compounding. N o member bank shall advertise a percentage yield based on the effect o f grace periods permitted in § 2 1 7 .3 (d ). (2) Notwithstanding the provisions o f subparagraph (1 ) o f this paragraph, withdrawals may be permitted by a member bank to be made automatically or as a normal practice from a sav ings deposit that consists only o f funds in which the entire beneficial interest is held by one or more individuals through payment to the bank itself or through transfer o f credit to a demand deposit or other account pursuant to written authorization from the depositor to make such payments or transfers in order to cover checks or drafts drawn upon the bank or to maintain a specified balance in or to make periodic transfers to such accounts. In accordance with § 217.1(e) (2 ) o f this Part, a member bank must reserve the right to require the depositor to give notice in writing o f an intended withdrawal not less than 30 days before such withdrawal is made. Such notice shall be prominently disclosed and specifi cally brought to the depositor’s attention at the time the automatic transfer service is authorized. A member bank may not require a depositor to authorize such automatic transfer to be made from savings deposits. (3 ) A member bank may permit depositors to maintain deposits subject to negotiable orders o f withdrawal where authorized by Federal law. (c) Percentage yields based on periods in excess N o advertisement shall include any indication o f a total percentage yield, compounded or simple, based on a period in excess o f a year, or an average annual percentage yield achieved by compounding during a period in excess o f a year. o f one year. (d) T im e or am ou n t requirem ents. If an adver tised rate is payable only on deposits that meet time or amount requirements, such requirements shall be clearly and conspicuously stated. Where the time requirement for an advertised rate is in excess o f a year, the required number o f years for the rate to apply shall be stated with equal prominence, together with an indication o f any lower rate or rates that will apply if the deposit is withdrawn at an earlier maturity. (e) Penalty fo r early w ithdraw als. Any adver tisement, announcement, or solicitation relating to interest paid by a member bank on time de posits shall include clear and conspicuous notice that Federal law and regulation prohibit the bank from allowing payment o f a time deposit before maturity unless substantial interest is forfeited. Such notice may state that, (4 ) Where a savings deposit is evidenced by a passbook, every withdrawal made upon presenta tion o f the passbook shall be entered in the pass book at the time o f withdrawal, and every other “ Federal law and regulation prohibit the payment o f a time deposit prior to maturity 9 §§ 217.6-217.7 R E G U L A T IO N Q shall advertise a percentage yield on any deposit it solicits for a member bank that is not author ized to be paid and advertised by such bank. (i) N e g o tia b le orders o f w ithdraw al. In addition to compliance with the other paragraphs o f this section, member banks offering accounts subject to negotiable orders o f withdrawal, to the extent practicable, shall limit every advertisement, an nouncement or solicitation made in any news paper. magazine, radio, television or other media to such facilities directed toward residents o f the States in which Federal law authorizes the issu ance o f such accounts. All other advertisement, announcements and solicitations o f such accounts, including direct mailing, circulars, and notices, whether written or oral, to the extent practicable, shall be directed only to persons residing or em ployed in the States in which Federal law author izes the issuance o f accounts subject to negotiable orders o f withdrawal and to persons who are customers o f member banks in those States on the effective date o f this amendment. unless three months o f the interest thereon is forfeited and interest on the amount with drawn is reduced to the passbook rate.” With respect to any advertisement, announce ment, or solicitation made by television or radio, the required notice o f penalty may be stated in a form such as “ Substantial interest penalty is re quired for early withdrawal.” Any advertisement, announcement or solicitation relating to interest paid by a member bank on negotiable Investment Certificates issued pursuant to subpart 3 o f § 2 17.7(b ) shall include clear and conspicuous notice that Federal law and regulation prohibit the payment o f such certificate prior to maturity. (f) P rofit. The term “ profit” shall not be used in referring to interest paid on deposits. (g) A c c u r a c y o f advertising. N o member bank shall make any advertisement, announcement, or solicitation relating to the interest paid on deposits that is inaccurate or misleading or that misrep resents its deposit contracts. (h) Solicitation o f deposits fo r ban ks. Any per son or organization that solicits deposits for a member bank shall be bound by the rules con tained in this section with respect to any adver tisement, announcement, or solicitation relating to such deposits. N o such person or organization (SECTION 217.7— M A X IM U M RATES OF INTEREST PA Y A B L E BY M EM BER BANKS ON TIM E A N D SAVIN G S DEPOSITS, is printed separately.) 10 S T A T U T O R Y A P P E N D IX R E G U L A T IO N Q STATUTORY APPENDIX Section 19 o f the Federal Reserve A ct provides in part as follows: (a) The Board is authorized for the purposes o f this section to define the terms used in this section, to determine what shall be deemed a payment o f interest, to determine what types o f obligations, whether issued directly by a member bank or indirectly by an affiliate o f a member bank or by other means, and, regardless o f the use o f the proceeds, shall be deemed a deposit, and to prescribe such regulations as it may deem neces sary to effectuate the purposes o f this section and to prevent evasions thereof. agency, or officer o f the foregoing, as is incon sistent with the provisions o f this section as amended, is hereby repealed. [U.S.C., title 12, sec. 371a.] (j) The Board may from time to time, after consulting with the Board o f Directors o f the Federal Deposit Insurance Corporation and the Federal Home Loan Bank Board, prescribe rules governing the payment and advertisement o f in terest on deposits, including limitations on the rates o f interest which may be paid by member banks on time and savings deposits. The Board may prescribe different rate limitations for dif ferent classes o f deposits, for deposits o f different amounts or with different maturities or subject [U.S.C., title 12, sec. 461] to different conditions regarding withdrawal or *** repayment, according to the nature or location (i) N o member bank shall, directly or indi o f member banks or their depositors, or accord rectly, by any device whatsoever, pay any interest ing to such other reasonable bases as the Board on any deposit which is payable on demand: may deem desirable in the public interest. N o Provided, That nothing herein contained shall be member bank shall pay any time deposit before construed as prohibiting the payment o f interest its maturity except upon such conditions and in in accordance with the terms o f any certificate o f accordance with such rules and regulations as deposit or other contract entered into in good may be prescribed by the said Board, or waive faith which is in force on the date on which the any requirement o f notice before payment o f bank becomes subject to the provisions o f this any savings deposits except as to all savings de paragraph; but no such certificate o f deposit or posits having the same requirements: Provided, other contract shall be renewed or extended un That the provisions o f this paragraph shall not less it shall be modified to conform to this para apply to any deposit which is payable only at an graph, and every member bank shall take such office o f a member bank located outside o f the action as may be necessary to conform to this States o f the United States and the District o f paragraph as soon as possible consistently with its Columbia. During the period commencing on contractual obligations: Provided further, That October 15, 1962, and ending on October 15, this paragraph shall not apply to any deposit o f 1968, the provisions o f this paragraph shall not such bank which is payable only at an office apply to the rate o f interest which may be paid thereof located outside of the States o f the United by member banks on time deposits o f foreign States and the District o f Columbia: Provided governments, monetary and financial authorities further, That until the expiration o f two years o f foreign governments when acting as such, or after the date o f enactment o f the Banking Act o f international financial institutions o f which the 1935 this paragraph shall not apply (1 ) to any United States is a member. deposit made by a savings bank as defined in sec tion 12B o f this Act, as amended, or by a mutual [U.S.C., title 12, sec. 371b. The first two sentences of this savings bank, or (2 ) to any deposit o f public paragraph are, in part, temporary. Unless section 7 of the Act funds made by or on behalf o f any State, county, of September 21, 1966 (as amended by the Act of December 31, 1975) is modified, on December 15, 1978, school district, or other subdivision or municipal such sentences will read as follows: “The Board of ity, or to any deposit o f trust funds if the pay Governors of the Federal Reserve System shall from time to ment o f interest with respect to such deposit of time prescribe rules governing the payment and advertisement of interest on deposits, including limitations on the rate of public funds or o f trust funds is required by State interest which may be paid by member banks on time and law. So much o f existing law as requires the pay savings deposits, and shall prescribe different rates for such ment o f interest with respect to any funds de payment on time and savings deposits having different maturi ties, or subject to different conditions respecting withdrawal or posited by the United States, by any Territory, repayment, or subject to different conditions by reason of District, or possession thereof (including the Phil different locations, or according to the varying discount rates ippine Islands), or by any public instrumentality, of member banks in the several Federal Reserve districts.”] 11 B O A R D OF G O V E R N O R S of the F E D E R A L R E SE R V E SYST EM B A N K H O LD IN G COM PANIES R E G U L A T IO N Y (12 C F R 225) A s amended effective April 5, 1978 A n y inquiry relating to this regulation should be addressed to the Federal Reserve Bank of the Federal Reserve district in which the inquiry arises. Forms for the preparation of registration statements, applications, requests, and reports may be obtained from any Federal Reserve Bank. CONTENTS Sec. 225.1— D efinitions .............................. (a) Terms used in the A c t ................... (b) Federal Reserve B a n k ................... 3 3 3 S ec. 225.2— D eterminations Regarding Control .................................... 3 (a) Conclusive presumptions of control . . (b) Rebuttable presumptions o f con trol.. (c) Procedures for determining control. . 3 3 4 Sec. 225.3— A cquisition or of B ank Shares A s s e t s ................................. (a) Submission of applications ............... (b) Action on applications....................... (c) Application to retain shares acquired in a fiduciary capacity..................... Sec. 225.4— N onbanking A ctivities ........... (a) Activities closely related to banking or managing or controlling banks . . . . (b) ( 1) De novo en try................................ (2 ) Acquisition of going concern. . . . (3) Simplified procedures ................. (c) Tie-ins, alterations, relocations, con solidations ........................................ (d) Certain acquisitions by companies that became bank holding companies on December 31, 1970, as a result of the 1970 amendments................... Page Page 4 4 5 5 5 5 8 8 8 9 9 (e ) Activities o f companies in which na tional banks may in v e s t .................. ( f ) Foreign activities o f domestic holding companies ........................................... (g ) Foreign bank holding companies . . . . Sec . 10 10 10 225.5— A dministration .......................... 11 (a ) Effective date o f registration ............ (b ) Reports and examinations ................ (c ) Registration o f certain bank holding companies and their nonbank sub sidiaries as transfer a g e n ts.............. (d ) Applications for stays o f disciplinary sanctions or summary suspensions by a registered clearing agency . . . (e ) Applications for review o f final dis ciplinary sanctions, denials o f par ticipation or prohibitions or limi tations o f access to services imposed by registered clearing agencies . . . . ( f ) Bank holding companies, certain o f their subsidiaries, departments or divisions o f such subsidiaries, which are municipal securities dealers . . . 11 11 13 Sec . 225.6— C orporate P r a c t ic e s .............. 14 Statutory A p p e n d ix ......................................... 15 12 12 12 R E G U L A T IO N Y (1 2 C F R 2 2 5 ) A s am en d ed effective A p r il 5 , 1 9 7 8 B A N K H O LD IN G C O M PAN IES* SECTION 225.1— DEFINITIONS 2(a)(2)(A) and (B) and by section 2(g)(1) and (2) o f the Act. In addition, the Board has determined (a) T e rm s used in the A c t . As used in this Part, that, whenever the transferability o f 25 per cent the terms “ bank holding company” , “ company” , or more o f any class o f voting securities o f a “ bank” , “ subsidiary” , and “ Board” have the same company is conditioned in any manner, whether meanings as those given such terms in the Act. pursuant to an agreement, by-law, article o f in (b) F ederal R eserve B a n k . The term “ Federal corporation, or otherwise, upon the transfer o f Reserve Bank” as used in this Part with respect 25 per cent or more o f any class o f voting secu to action by, on behalf of, or directed to be taken rities o f another company, the holders o f the se by a bank holding company or other organization curities affected by the condition (that is, those shall mean either the Federal Reserve Bank o f the who hold both the securities whose tranferability Federal Reserve district in which the operations o f is so conditioned and the securities whose transfer the bank holding company or other organization can be required to satisfy the condition) consti are principally conducted, as measured by total tute, in their capacity as such, a “ company” for deposits held or controlled by it on the date on the purposes o f the A ct unless one o f the issuers which it became, or is to become, a bank holding o f such securities is a subsidiary o f the other and company, or such Reserve Bank as the Board may is so identified in an order o f the Board or in a designate. registration statement or report accepted by the Board under the Act. (b) R ebuttable presum p tions o f con trol. A re SECTION 225.2— DETERMINATIONS buttable presumption that a company controls a REGARDING CONTROL bank or other company is established by section 2(g)(3) o f the Act. In addition, the Board has es (a) C o n clu sive presum ptions o f con trol. C on tablished, for use in proceedings instituted in ac clusive presumptions that a company controls a cordance with the procedures o f paragraph (c) bank or other company are established by section below, the following rebuttable presumptions: (1) A company that owns, controls, or has * This text corresponds to the Code of Federal power to vote more than 5 per cent o f any class Regulations, Title 12, Chapter II, Part 225, cited as o f voting securities o f a bank or other company 12 CFR 225. The “ A ct” referred to herein is the Bank Holding Company Act o f 1956. The words (except where such securities are held in a fidu “ this Part,” as used herein, mean Regulation Y. ciary capacity and the company does not have (Prior to December 1, 1971, this Part was designated as Part 222.) sole discretionary authority to exercise the voting 3 § 225.3 R E G U L A T IO N Y securities presumably owns or controls the voting rights) presumably controls that bank or other company if (i) one or more o f the company’s di rectors, trustees, or partners, or officers or em ployees with policymaking functions serves in any o f these capacities with the bank or other com pany, and (ii) no other person owns, controls, or has power to vote as much as 5 per cent o f any class o f voting securities o f that bank or other company. (2) A company that owns, controls, or has power to vote more than 5 per cent o f any class o f voting securities o f a bank or other company (except where such securities are held in a fidu ciary capacity and the company does not have sole discretionary authority to exercise the voting rights) presumably controls that bank or other company if additional voting securities are owned, controlled, or held with power to vote by indi viduals (or members o f their immediate families as defined in § 206.2(k) o f this chapter (Regula tion F ) ) who are directors, officers, trustees, or partners o f the company (or own, directly or in directly, 25 per cent or more o f any class o f vot ing securities o f the company) and, together with the company’s securities, aggregate 25 per cent or more o f any class o f voting securities o f that bank or other company. (3) A company that enters into any agreement or understanding with a bank or other company (other than an investment advisory agreement), such as a management contract, pursuant to which the company or any o f its subsidiaries ex ercises significant influence with respect to the general management or overall operations o f the bank or other company presumably controls such bank or other company. (4) A company that enters into any agreement or understanding under which the rights o f a holder o f voting securities o f a bank or other company are restricted in any manner presum ably controls the shares involved, unless the agreement or understanding (i) is a mutual agree ment among shareholders granting to each other a right o f first refusal with respect to their shares, or (ii) is incident to a bona fide loan transaction, or (iii) relates to restrictions on transferability and continues only for such time as may reason ably be necessary to obtain approval from a Fed eral bank supervisory authority with respect to acquisition by the company o f such securities. securities. (c) Procedures fo r determ ining control. (1) In any case in which a presumption established by paragraph (b) o f this section applies, or in any other case where it appears to the Board that a company exercises a controlling influence over the management or policies o f a bank or other company, and the company has not complied with the provisions o f the Act, the Board may in form the company that a preliminary determina tion o f control has been made on the basis o f the facts summarized in the communication. Such company shall within 30 days (or such longer period o f time as may be permitted by the Board) (i) indicate to the Board its willingness to termi nate the control relationship and to furnish promptly its specific plan to do so; or (ii) state that it will promptly seek Board approval to retain the control relationship, or, if the control relationship has existed continuously since prior to December 31, 1970 (in a manner not covered by section 2(a)(2)(A) or (B)), that it will register as a bank holding company or, if already a hold ing company report the bank or other company as a subsidiary, or otherwise comply with the applicable provisions o f the Act; or (iii) set forth such facts and circumstances as may support its contention that there is not a control relationship. (2) A company may request a hearing to con test the Board’s preliminary determination o f con trol. In the event a hearing is held, any applicable presumptions established by paragraph (b) o f this section shall be considered in the usual manner in accordance with the rules o f evidence, and the Board will by order, on the basis o f the record o f the hearing, decide the issues involved and direct such action as may be necessary or appropriate in the circumstances. In the event no hearing is held, but the preliminary determination o f con trol is contested, the Board will decide the matter on the basis o f the evidence available to it, rely ing on the presumptions established in paragraph (b) o f this section, and will by order direct such action as may be necessary or appropriate in the circumstances. S E C T I O N 2 2 5 .3 — A C Q U I S I T I O N O R R E T E N T IO N O F B A N K SH A R E S O R A SSE TS (a) S ubm ission o f applications. An application for approval by the Board o f any transaction re quiring approval under section 3(a) o f the Act shall be filed with the Federal Reserve Bank. A (5) A company that owns directly or indirectly securities that are immediately convertible at the option o f the holder or owner thereof into voting 4 § 225.4 R E G U L A T IO N Y separate application shall be filed with respect to each bank the voting shares or assets o f which are sought to be acquired by an existing bank holding company or nonbanking subsidiary thereof. (b) A c tio n on applications. Applications under this section are processed in accordance with the procedures specified in the A ct and in § 262.3 of the Board’s Rules o f Procedure (Part 262 o f this chapter). Any application for the Board’s ap proval o f the formation o f a company that con trols only one bank shall be deemed to be ap proved 45 days after the company has been in formed by its Reserve Bank that said application has been accepted, unless the company is notified to the contrary within that time or is granted ap proval at an earlier date. (c) A p p lica tio n s to retain shares acquired in a fiduciary capacity. Applications under this sub section are processed on the basis o f a letter o f notification without compliance with section 262.3(h) o f the Board’s Rules o f Procedure. Any application for the Board’s approval to retain shares o f bank stock acquired in a fiduciary capacity (with sole voting rights), which is ac companied by an unconditional undertaking by the Applicant to dispose o f such shares or its sole discretionary voting rights with respect to such shares within two years from the date o f such acquisition, shall be deemed to be approved 45 days after the Applicant has been informed by the Reserve Bank that said application has been accepted, unless the Applicant is notified to the contrary within that time or is granted approval at an earlier date. this section. As to such an application, the Board will publish in the Federal Register a notice o f opportunity for hearing only if it believes that there is a reasonable basis for the holding com pany’s opinion. The following activities have been determined by the Board to be so closely related to banking or managing or controlling banks as to be a proper incident thereto: (1) making or acquiring, for its own account or for the account of others, loans and other exten sions o f credit (including issuing letters o f credit and accepting drafts), such as would be made, for example, by a mortgage, finance, credit card, or factoring company; (2) operating as an individual bank, Morris Plan bank, or industrial loan company, in the manner authorized by State law so long as the institution does not both accept demand deposits and make commercial loans; (3) servicing loans and other extensions o f credit for any person; (4) performing or carrying on any one or more o f the functions or activities that may be performed or carried on by a trust company (in cluding activities o f a fiduciary, agency, or custo dian nature), in the manner authorized by Federal or State law, so long as the institution does not make loans or investments or accept deposits other than (i) deposits that are generated from trust funds not currently invested and are properly secured to the extent required by law, or (ii) de posits representing funds received for a special use in the capacity o f managing agent or custo dian for an owner of, or investor in, real prop erty, securities, or other personal property, or for such owner or investor as agent or custodian o f SECTION 225.4— NONBANKING funds held for investment or escrow agent, or for ACTIVITIES an issuer of, or broker or dealer in securities, in a capacity such as paying agent, dividend dis (a) A ctivities closely related to banking or m a n bursing agent, or securities clearing agent, and not aging o r controlling ban ks. In accordance with the employed by or for the account o f the customer procedures set forth in paragraphs (b) and (c) o f in the manner o f a general purpose checking ac this section, any bank holding company may en count or bearing interest, or (iii) making o f call gage, or retain or acquire an interest in a com loans to securities dealers or purchase o f money pany that engages, solely in one or more o f the market instruments such as certificates o f deposit, activities specified below, including such incidental commerical paper, government or municipal secu activities as are necessary to carry on the activities rities, and bankers acceptances (such authorized so specified. Any bank holding company that is of loans and investments, however, may not be used the opinion that other activities in the circum as a method o f channeling funds to nonbanking stances surrounding a particular case are closely affiliates o f the trust company); . . . related to banking or managing or controlling (5) acting as investment or financial adviser to banks may file an application in accordance with the extent o f (i) serving as the advisory company the procedures set forth in paragraph (b)(2) o f for a mortgage or a real estate investment trust; 5 § 225.4 R E G U L A T IO N Y (iv ) at the inception o f the initial lease the ef fect o f the transaction (and, with respect to gov ernmental entities only, reasonably anticipated future transactions 4) will yield a return that will compensate the lessor for not less than the les sor’s full investment in the property plus the esti mated total cost o f financing the property over the term o f the lease,5* from: (1) rentals; (2) es timated tax benefits (investment tax credit, net econom ic gain from tax deferral from accelerated depreciation, and other tax benefits with a sub stantially similar effect); (3) the estimated resid ual value o f the property at the expiration o f the initial term of the lease, which in no case shall exceed 20 per cent o f the acquisition cost o f the property to the lessor; and (4) in the case o f a lease o f not more than 7 years in duration, such additional amount, which shall not exceed 60 per cent o f the acquisition cost o f the property, as may be provided by an unconditional guarantee by a lessee, independent third party or manufac turer, which has been determined by the lessor to have the financial resources to meet such obliga tion, that will assure the lessor o f recovery o f its investment and cost o f financing; (v) the maximum lease term during which the lessor must recover the lessor’s full investment in the property plus the estimated total cost o f financing the property shall be 40 years; and (vi) at the expiration o f the lease (including any renewals or extensions with the same lessee), (ii) serving as investment adviser, as defined in section 2(a) (20) o f the Investment Company A ct o f 1940, to an investment company regis tered under that Act; (iii) providing portfolio in vestment advice1 to any other person; (iv) fur nishing general economic information and advice, general economic statistical forecasting services and industry studies;2 and (v) providing financial advice to State and local governments, such as with respect to the issuance o f their securities; (6)(a) Leasing personal property or acting as agent, broker or adviser in leasing such property provided: (i) the lease is to serve as the functional equivalent o f an extension o f credit to the lessee o f the property; (ii) the property to be leased is acquired spe cifically for the leasing transaction under consid eration or was acquired specifically for an earlier leasing transaction; (iii) the lease is on a nonoperating basis;3 1 The term “ portfolio investment” as used herein is intended to refer generally to the investment of funds in a “ security” as defined in section 2 (1 ) of the Securities Act of 1933 (15 U.S.C. § 77a) or in real property interests, except where the real property is to be used in the trade or business of the person being advised. In furnishing portfolio investment advice, bank holding companies and their subsidiaries shall observe the standards of care and conduct ap plicable to fiduciaries. 2 This is to be contrasted with “ management con sulting” 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, corp orate acquisitions and mergers and determination of long-term and short-term goals; (v) personnel oper ations, such as recruitment, training, incentive pro grams, employee compensation, and managementpersonnel 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 pro duct design and innovation. The Board has determined that “ management consulting” is not an activity that is so closely related to banking or managing or controlling banks as to the proper incident thereto. 3 For purposes o f the leasing o f automobiles, the requirement that the lease be on a nonoperating basis means that the bank holding company may not, directly or indirectly, provide for the servicing, repair or main tenance o f the leased vehicle during the lease term; purchase parts and accessories in bulk or for an indi- vidual vehicle after the lessee has taken delivery o f the vehicle; provide for the loan of an automobile during servicing of the leased vehicle; purchase insurance for the lessee; or 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. 4 The Board understands that some Federal, State and local governmental entities may not enter into a lease for a period in excess of one year. Such an impediment does not prohibit a company authorized under § 225.4(a) from entering into a lease with such governmental entities if the company reasonably anticipates that such governmental entities will renew the lease annually until such time as the company is fully compensated for its investment in the leased property plus its costs of financing the property. Further, a company authorized under § 225.4 (a )(6 ) may also engage in so-called ‘bridge” lease financing of personal property, but not real prop erty, where the lease is short term pending completion of long term financing, by the same or another lender. 5 The estimate by the lessor of the total cost of finan cing 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. 6 R E G U L A T IO N Y § 225.4 all interest in the property shall be either liqui dated or re-leased on a nonoperating basis as soon as practicable but in no event later than two years from the expiration o f the lease,6 however, in no case shall the lessor retain any interest in the property beyond 50 years after its acquisition o f the property. (6)(b) Leasing real property or acting as agent, broker or adviser in leasing 3uch property provided: (i) the lease is to serve as the functional equivalent o f an extension o f credit to the lessee o f the property; (ii) the property to be leased is acquired spe cifically for the leasing transaction under consid eration or was acquired specifically for an earlier leasing transaction; (iii) the lease is on a nonoperating basis; (iv) at the inception o f the initial lease the ef fect o f the transaction (and, with respect to gov ernmental entities only, reasonably anticipated fu ture transactions 4) will yield a return that will compensate the lessor for not less than the les sor’s full investment in the property plus the esti mated total cost o f financing the property over the term o f the lease,5 from: (1) rentals; (2) es timated tax benefits (investment tax credit, net econom ic gain from tax deferral from accelerated depreciation, and other tax benefits with a sub stantially similar effect); and (3) the estimated residual value o f the property at the expiration of the initial term o f the lease, which in no case shall exceed 20 per cent o f the acquisition cost of the property to the lessor. (v) the maximum lease term during which the lessor must recover the lessor’s full investment in the property plus the estimated total cost o f financing the property shall be 40 years; and (vi) at the expiration o f the lease (including any renewals or extensions with the same lessee), all interest in the property shall be either liqui dated or re-leased on a nonoperating basis as soon as practicable but in no event later than two years from the expiration o f the lease,6 however, in no case shall the lessor retain any interest in the property beyond 50 years after its acquisition o f the property. (7) making equity and debt investments in corporations or projects designed primarily to promote community welfare, such as the eco nomic rehabilitation and development o f low-in come areas; (8) (i) providing bookkeeping or data process ing services for the internal operations o f the holding company and its subsidiaries and (ii) storing and processing other banking, financial, or related econom ic data, such as performing pay roll, accounts receivable or payable, or billing services, and (9) acting as insurance agent or broker in offices at which the holding company or its sub sidiaries are otherwise engaged in business (or in an office adjacent thereto) with respect to the following types o f insurance: (i) Any insurance for the holding company and its subsidiaries; (ii) Any insurance that (a ) is directly related to an extension o f credit by a bank or a bank-re lated firm of the kind described in this regulation, or ( b ) is directly related to the provision of other financial services by a bank or such a bank-related firm or (c ) is otherwise sold as a matter o f convenience to the purchaser, so long as the premium income from sales within this subdivision (ii) (c ) does not constitute a signifi cant portion o f the aggregate insurance premium income o f the holding company from insurance sold pursuant to this subdivision (ii); (iii) Any insurance sold in a community that (a ) has a population not exceeding 5,000, or ( b ) the holding company demonstrates has inade quate insurance agency facilities. (1 0 ) acting as underwriter for credit life in surance and credit accident and health insurance which is directly related to extensions o f credit by the bank holding company system.7 (1 1 ) providing courier services (i) for the in ternal operations o f the holding company and its subsidiaries; (ii) for checks, commercial papers, documents, and written instruments (excluding currency or bearer-type negotiable instruments) as are exchanged among banks and banking insti 7 To assure that engaging in the underwriting of credit life and credit accident and health insurance can reason ably 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. See page 6 for footnotes 4 and 5. n In the event o f a default on a lease agreement prior to the expiration of the lease term, the lessor shall either release such property, subject to all the conditions o f this subsection 6(b), or liquidate such property as soon as practicable but in no event later than two years from the date o f default on a lease agreement 7 § 225.4 REGULATION Y after the company has so published its proposal,11 or if it otherwise appears appropriate in a particu lar case, the Reserve Bank may inform the com pany that (i) the proposal shall not be consum mated until specifically authorized by the Reserve Bank or by the Board or (ii) the proposal should be processed in accordance with the procedures of subparagraph (2) of this paragraph. (2) Acquisition of going concern. A bank holding company may apply to the Board to ac quire or retain the assets of or shares in a com pany engaged solely in activities described in para graph (a) of this section by filing an application with its Reserve Bank (Form F.R. Y-4). Every such application shall be accompanied by a copy of a notice of the proposal (in substantially the same form as F.R. Y-4B) published within the preceding 30 days in a newspaper of general cir culation in the communities to be served. The Board will publish in the Federal Register notice of any such application and will give interested persons an opportunity to express their views (in cluding, where appropriate, by means of a hear ing) on the question whether performance of the activity proposed by the holding company can reasonably be expected to produce benefits to the public, such as greater convenience, increased competition, or gains in efficiency, that outweigh possible adverse effects, such as undue concentra tion of resources, decreased or unfair competi tion, conflicts of interests, or unsound banking practices. (3) Simplified procedures.* (i) The proce dures of subparagraphs (1) and (2) of this para graph shall not apply with respect to a holding company or a subsidiary thereof engaging in the following: ( g ) making, acquiring, or servicing loans or other extensions of credit for personal, family, or household purposes if the commencement or ex pansion of such activity does not involve an ac quisition of assets of $10 million or more (or the acquisition of shares of a company having such tutions; (iii) for audit and accounting media of a banking or financial nature and other business records and documents used in processing such media.8 (12) providing management consulting advice 9 to nonaffiliated banks Provided that, (i) neither the bank holding company nor any of its sub sidiaries own or control, directly or indirectly, any equity securities in the client bank; (ii) no officer, director, or employee of the bank holding company or any of its subsidiaries serves as an officer, director or employee of the client bank except where such interlocking relationships are or would be permitted by section 212.3(g) of Regulation L; (iii) the advice is rendered on an explicit fee basis without regard to correspondent balances maintained by the client bank at any subsidiary bank of the bank holding company; and (iv) disclosure is made to each potential client bank of (a) the names of all banks which are affiliates of the consulting company, and (b) the names of all existing client banks located in the same market area(s) as client bank.10 (b)(1) De novo entry. A bank holding com pany may engage de novo (or continue to engage in an activity earlier commenced de novo) di rectly or indirectly, solely in activities described in paragraph (a) of this section, 45 days after the company has furnished its Reserve Bank with a copy of a notice of the proposal (in substan tially the same form as F.R. Y-4A) published within the preceding 30 days in a newspaper of general circulation in the communities to be served, unless the company is notified to the con trary within that time or unless it is permitted to consummate the transaction at an earlier date on the basis of exigent circumstances of a particular case. If adverse comments of a substantive nature are received by the Reserve Bank within 30 days 8 Applications to engage de novo in providing courier services should be filed in accordance with the pro cedures of § 225.4(b )(2) rather than § 225.4(b )(1). See also the Board’s interpretation on courier activities (12 CFR 225.129), which sets forth conditions for holding company entry pursuant to § 4 (c )(8 ). 9 In performing this activity bank holding companies are not authorized to perform tasks or operations or provide services to client banks either on a daily or continuing basis, except as shall be necessary to instruct the client bank on how to perform such services for itself. See also the Board’s interpretation of bank man agement consulting advice (12 CFR 225.131). 10 Applicants to engage de novo in providing manage ment consulting advice to nonaffiliated banks should be filed in accordance with the procedures of § 225.4 (b )(2 ) rather than § 225.4(b )(1) of Regulation Y. 11 If a Reserve Bank decides that adverse comments are not of a substantive nature, the person submitting the comments may request review by the Board of that decision in accordance with the provisions of § 265.3 of the Board’s Rules Regarding Delegation of Authority (12 CFR 265.3) by filing a petition for review with the Secretary of the Board. * By order dated December 21, 1971, the Board suspended the operation of § 225.4(b )(3) of Regulation Y until further notice (36 Federal Register 25048, December 28, 1971). 8 R E G U L A T IO N Y § 225.4 assets) except that ( / ) no holding company may acquire more than $50 million in assets in any calendar year under the provisions o f this clause, (2) within 30 days after the consummation o f such an acquisition, the holding company informs its Reserve Bank o f the acquisition (in substantially the same form as F.R. Y -4 B ), and (3 ) whenever necessary to effectuate the purposes o f the Act, the Board may require suspension or discontinua tion o f any action taken, or divestiture of any ac quisition made, on authority o f this provision and may withdraw such authority with respect to any particular holding company; (b) engaging in activities described in § 225.4(a) that are shifted from a bank in the holding com pany system and were engaged in by the bank either de novo or as a result o f a merger trans action described in and approved by a Federal su pervisory agency pursuant to section 1 8 (c) of the Federal Deposit Insurance Act (12 U.S.C. 1 8 2 8 (c )), 45 days after the holding company has informed its Reserve Bank o f its proposal to shift such activity (in substantially the same form as F.R. Y -4 B ), unless the company is notfiied to the contrary within that time or is permitted to con summate the transaction at an earlier date. (ii) The procedures o f subparagraph (1 ) o f this paragraph shall not apply with respect to a holding company or a subsidiary thereof en gaging de novo as insurance agent or broker with respect to the types of insurance listed in subdivisions (i ), (ii), and ( iii) ( « ) o f paragraph ( a ) ( 9 ) o f this section, 45 days after the holding company has informed its Reserve Bank o f its proposal to engage in such activity (in substan tially the same form as F.R. Y -4B ), unless the company is notified to the contrary within that time or is permitted to consummate the transac tion at an earlier date. (c) T ie -in s, alterations, relocations, con solid a tions. Except as otherwise provided in an order in a particular case, the following conditions shall apply with respect to every acquisition consum mated or activity engaged in on the authority of section 4 ( c ) ( 8 ) o f the A ct: (1 ) the provision of any credit, property or services involved shall not be subject to any condition which, if imposed by a bank, would constitute an unlawful tie-in ar rangement under section 106 o f the Bank H old ing Company Act Amendments o f 1970; (2 ) the activities involved shall not be altered in any sig nificant respect from those considered by the Board in making the determination, nor provided 9 at any location other than those described in the notice published with respect to such determina tion, except upon compliance with the procedures o f paragraph ( b ) ( 1 ) of this section; and (3 ) no merger, or acquisition o f assets other than in the ordinary course of business, to which the acquired company is a party shall be consummated without prior Board approval, if thereafter the bank hold ing company will continue to own, directly or indirectly, more than five per cent o f the voting shares o f such company or its successor. (d) Certain acquisitions by com p anies that b e cam e bank holding com p anies on D e c e m b e r 3 1 , am end m ents. Ex cept as provided in this paragraph, no bank hold ing company may acquire, directly or indirectly, any shares or commence to engage in any activi ties on the basis o f section 4 (c ) (1 2 ) o f the Act. A company may file with the Board an irrevoca ble declaration, in, the form approved by the Board,12 that it will cease to be a bank holding company by January 1, 1981, unless it is granted an exemption under section 4 (d ) o f the Act. A company that has filed such a declaration may (1 ) commence new activities de novo, either di rectly or through a subsidiary, without further ac tion under this paragraph, until such time as the Board notifies the company to the contrary, and (2 ) make an acquisition o f a going concern 45 days after the company has informed its Reserve Bank o f the proposed acquisition, unless the company is notified to the contrary within that time or unless it is permitted to make the acquisi tion at an earlier date, based on exigent circum stances o f a particular case. If the company has not filed such a declaration, no acquisition may be made, or activity commenced, on the basis o f section 4 (c ) (1 2 ) except with prior approval o f the Board. Normally only requests with respect to acquisitions or expansion o f activities that the company demonstrates to the satisfaction o f the Board are necessary to enable it more efficiently to market its assets subject to divestiture will be approved. This paragraph does not apply to ac quisitions made pursuant to a binding commit ment entered into before March 23, 1971. 1 9 7 0 , as a result o f the 1 9 7 0 12 Although the form o f declaration is in terms o f a company divesting itself o f whatever interest it has in the bank, a company is regarded by the Board as com plying with this condition if it furnishes the Board with convincing evidence that it does not exercise a con trolling influence over the management or policies of the bank despite retention of some interest in the bank. § 225.4 R E G U L A T IO N Y to engage in receiving deposits in any foreign country (other than a foreign country in which it already has such an activity with the Board’s ap proval) or (b ) issue in the United States any de bentures, bonds, promissory notes, or similar obli gations, other than instruments or obligations due within one year. (4 ) A bank holding company shall inform the Board, through its Federal Reserve Bank within 30 days after the close o f each semiannual pe riod, o f all shares acquired or disposed o f during that period that are or were held under the au thority o f this paragraph. With respect to any ac quisition, such information shall (unless previ ously furnished) include brief descriptions o f the business o f the companies whose shares were ac (e) A ctivities o f com p an ies in w hich national N o bank holding company or subsidiary thereof that is not a bank or subsidiary o f a bank may, after June 30, 1971, acquire shares on the basis o f section 4 ( c ) ( 5 ) o f the Act unless such shares are o f the kinds and amounts explicitly eligible by Federal statute for invest ment by a national bank. A national bank or a subsidiary thereof may acquire or retain shares on the basis o f section 4(c)(5) in accordance with the rules and regulations o f the Comptroller o f the Currency. So far as Federal law is con cerned, a State-chartered bank or a subsidiary thereof may (1 ) acquire or retain shares on the basis o f section (4 ) ( c ) ( 5 ) if such shares are of the kinds and amounts explicitly eligible by Fed eral statute for investment by a national bank and (2 ) acquire or retain all (but, except for directors’ qualifying shares, not less than all) o f the shares o f 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. (f) F oreign activities o f dom estic holding c o m panies. (1) Any bank holding company may, with the consent o f the Board, own or control voting shares o f any company in which a company or ganized under section 2 5 (a ) o f the Federal Re serve Act (12 U.S.C. 611-631) may invest other than a company that accepts deposits or similar credit balances in the United States. (2 ) The procedures governing the Board’s con sent shall be the same as those set forth in § 211.8 o f this chapter (Regulation K). In addition, the Board grants its general consent for any bank holding company to acquire from any o f its sub sidiaries any shares the subsidiary holds with the consent o f the Board pursuant to Parts 211 or 213 o f this chapter (Regulations K and M). The Board may at any time, upon notice, suspend the general consent procedures with respect to any bank hold ing company or with respect to the acquisition of shares o f companies engaged in particular kinds o f activities. (3 ) It shall be a condition to the Board’s spe cific consent to the continued holding o f voting shares o f any subsidiary o f a bank holding com pany which are acquired or held on the basis o f an exemption under section 4 ( c ) (1 3 ) o f the Act that the subsidiary may take the following actions only with prior Board approval: (a ) establish branch offices or agencies in the United States or banks m a y invest. quired. (g) F oreign bank holding com p an ies. (1 ) As used in this paragraph: (i) “ revenues” means gross income and “ consolidated” means consoli dated in accordance with generally accepted ac counting principles in the United States consist ently applied; (ii) “ foreign country” means any foreign nation or colony, dependency, or posses sion thereof; and (iii) “ foreign bank holding com pany” means a bank holding company, organized under the laws o f a foreign country, more than half o f whose consolidated assets are located, or consolidated revenues derived, outside the United States. (2 ) A foreign bank holding company may: (i) engage in direct activities o f any kind out side the United States; (ii) engage in direct activities in the United States that are incidental to its activities outside the United States; (iii) own or control voting shares o f any com pany that is not engaged, directly or indirectly, in any activities in the United States except as shall be incidental to the international or foreign busi ness o f such company; (iv ) with the consent o f the Board, own or control voting shares o f any company principally engaged in the United States in financing or fa cilitating transactions in international or foreign commerce; (v ) own or control voting shares o f any com pany, organized under the laws o f a foreign country, that is engaged, directly or indirectly, in any activities in the United States if (a ) such company is not a subsidiary o f such bank holding company, ( b ) more than half o f such company’s consolidated assets and revenues are located and 10 § 225.5 R E G U L A T IO N Y derived outside the United States, and (c ) such company does not engage, directly or indirectly, in the business o f underwriting, selling, or distrib uting securities in the United States; and (v i) own or control voting shares o f any com pany in fiduciary capacity under circumstances which would entitle such shareholding to an ex emption under section 4 ( c ) ( 4 ) o f the Act if the shares were held or acquired by the bank. Nothing in this subparagraph shall authorize a foreign bank holding company to own or control more than 5 per cent o f any class o f voting shares o f any other bank holding company or company accepting deposits or similar credit balances in the United States, except in a fiduciary capacity or with prior approval o f the Board. (3 ) A foreign bank holding company that is o f the opinion that other activities or investments may, in particular circumstances, meet the condi tions for an exemption under section 4 ( c ) ( 9 ) of the A ct may apply to the Board for such deter mination by submitting to the Reserve Bank of the district in which its banking operations in the United States are principally conducted a letter setting forth the basis for that opinion. (4 ) A foreign bank holding company shall in form the Board, through such Reserve Bank within 30 days after the close o f each quarter, of all shares o f companies engaged, directly or indi rectly, in activities in the United States that were acquired during such quarter under the authority o f this paragraph. Such information shall (unless previously furnished) include a brief description o f the nature and scope o f each such company’s business in the United States. Information re quired need be given only insofar as it is known or reasonably available to a foreign bank holding company, if any required information is unknown and not reasonably available to the bank holding company, either because the obtaining thereof would involve unreasonable effort or expense or because it rests peculiarly within the knowledge o f a company that is not controlled by the bank holding company, the information need not be provided, but the bank holding company shall (i) give such information on the subject as it pos sesses or can acquire without unreasonable effort or expense together with the sources thereof, and (ii) include a statement either showing that un reasonable effort or expense would be involved or indicating that the company whose shares were acquired is not controlled by the bank holding company and stating the result o f a request made to such company for information. N o such re quest need be made, however, to any foreign government, or an agency or instrumentality thereof, if, in the opinion o f the bank holding company, such request would be harmful to exist ing relationships. (5 ) If, in the Board’s judgment, a company is a substantial competitor in any line o f commerce in the United States, an exemption under this paragraph with respect to ownership or control of such company’s voting shares may not be predi cated on the unavailability of information to es tablish whether or not such company’s activities in the United States are consistent with such an exemption. In the absence o f available informa tion, it will be presumed that such a company’s activities do not justify an exemption under this paragraph for the holding o f its shares by a for eign bank holding company. A company will be deemed to be a substantial competitor in any line o f commerce in the United States if its products or services are nationally advertised or distributed in this country or if they are widely advertised or distributed in a regional market in which a bank ing subsidiary, branch or agency o f the foreign bank holding company is located. If unable to obtain sufficient information to establish whether or not an exemption is available, a foreign bank holding company should seek prior approval o f the Board before investing in any company that might be a substantial competitor in any line o f commerce in the United States. SECTION 225.5— A D M IN ISTR A T IO N (a) E ffective date o f registration. The date o f registration o f a bank holding company shall be the date on which its registration statement is filed with the Federal Reserve Bank. (b) R eports and exam inations. Each bank holding company shall furnish to the Board in a form prescribed by the Board a report o f the company’s operations for the fiscal year in which it becomes a, bank holding company, and for each fiscal year thereafter until it ceases to be a bank holding company. Each such annual report shall be filed with the Federal Reserve Bank. Each bank holding company shall furnish to the Board additional information at such times as the Board may require. The Board may examine any bank holding company or any o f its subsidiaries and the cost o f any such examination shall be as sessed against and paid by such bank holding 11 § 225.5 R E G U L A T IO N Y (4) Every bank holding company and nonbank subsidiary o f a bank holding company that is registered with the Board as a transfer agent is exempted until April 3, 1978, from that part of the provision o f Section 225.5(c)(2) that states (c) R egistration o f certain ban k h old ing c o m that “ [wjithin thirty calendar days following the close o f any calendar year * * * during which panies an d their n on ban k subsidiaries as transfer the information required by Item 7 o f Form TA-1 agents. (1) On or after December 1, 1975, no becomes inaccurate, misleading or incomplete, bank holding company or any o f its nonbank sub the bank holding company or its nonbank sub sidiaries that are “ banks” as defined in section sidiary shall file an amendment to Form TA-1 3(a)(6) o f the Securities Exchange A ct o f 1934 correcting the inaccurate, misleading or incom (“ A ct” ), shall act as transfer agent, as defined in plete information” . section 3(a)(25) o f that Act, with respect to any (d) A p p lica tio n s fo r stays o f disciplinary sanc security registered under section 12 o f the Act company. As far as possible the Board will use reports o f examinations made by the Comptroller o f the Currency; the Federal Deposit Insurance Corporation, or the appropriate State bank super visory authority. tions or that would be required to be registered under section 12 o f the Act, except for the exemption from registration provided by subsection (g)(2)(B) or (g)(2)(G) o f that section, unless it shall have filed a registration statement with the Board in conformity with the requirements o f Form TA-1, which registration statement shall have become effective as hereinafter provided. Any registration statement filed by such bank holding company or its nonbank subsidiary shall become effective on the thirtieth day after filing with the Board, unless the Board takes affirmative action to accelerate, deny or postpone such registration in accordance with the provisions o f section 17A(c) o f the Act. Such filings with the Board will con stitute filings with the Securities and Exchange Commission for purposes o f section 17(c)(1) of the Act. su m m a ry suspensions by a registered If a registered clearing agency for which the Securities and Exchange Com mission is not the appropriate regulatory agency, imposes any final disciplinary sanction pursuant to Section 17A(b)(3)(G) o f the Act, or summarily suspends or limits or prohibits access pursuant to Section 17A(b)(5)(C) o f the Act, any partici pant aggrieved thereby for which the Board is the appropriate regulatory agency may file with the Board, by telegram or otherwise, a request for a stay o f imposition o f such action. Such request shall be in writing and shall include a statement as to why such stay should be granted. agen cy. (e) A p p lica tio n s fo r review o f final disciplinary sanctions, denials o f participation or prohibitions or lim itations of access to services im posed by (1) Scope. Proceed ings on an application to the Board under Sec tion 19(d)(2) o f the A ct by a person that is subject to the Board’s jurisdiction for review of any action by a registered clearing agency for which the Securities and Exchange Commission is not the appropriate regulatory agency shall be governed by this paragraph. registered clearing agencies. (2) If the information contained in Items 1-6 o f Form TA-1 becomes inaccurate, misleading or incomplete for any reason, the bank holding com pany or its nonbank subsidiary shall, within twenty-one calendar days thereafter file an amend ment to Form TA-1 correcting the inaccurate, misleading or incomplete information. Within thirty calendar days following the close of any calendar year (beginning with the period from the date as o f which the registration statement is pre pared to December 31, 1976) during which the information required by Item 7 o f Form TA-1 becomes inaccurate, misleading or incomplete, the bank holding company or its nonbank subsidiary shall file an amendment to Form TA-1, correcting the inaccurate, misleading or incomplete infor mation. (3) Each registration statement on Form TA-1 or amendment thereto shall constitute a “ report” or “ application” within the meaning o f sections 17, 17A(c) and 32(a) o f the Act. or clearing (2) Procedure, (i) A n application for review pursuant to Section 19(d)(2) o f the Act shall be filed with the Board within 30 days after notice is filed by the registered clearing agency pursuant to Section 19(d)(1) o f the A ct and received by the aggrieved person applying for review, or within such longer period as the Board may determine. The Secretary o f the Board shall serve a copy o f the application on the registered clear ing agency, which shall, within ten days after receipt o f the application, certify and file with the Board one copy o f the record upon which the action complained was taken, together with three copies o f an index to such record. The 12 R E G U L A T IO N Y § 225.5 ularly to Section 263.21 o f the Rules o f Practice relating to formal requirements as to papers filed. (f) B ank hold ing com p an ies, certain o f their Secretary shall serve upon the parties copies o f such index and any papers subsequently filed. (ii) Within 20 days after receipt o f a copy of the index, the applicant shall file a brief or other statement in support of his application which shall state the specific grounds on which the ap plication is based, the particular findings o f the registered clearing agency to which objection is taken, and the relief sought. Any application not perfected by such timely brief or statement may be dismissed as abandoned. subsidiaries, and subsidiaries, departm ents or divi sions such subsidiaries, w hich are m unicipal (1) For purposes o f this para graph, the terms herein have the meanings given them in section 3(a) o f the Securities Exchange Act o f 1934 (15 U.S.C. 78c(a)) and the rules o f the Municipal Securities Rulemaking Board. The term A ct shall mean the Securities Exchange Act o f 1934 (15 U.S.C. 78a et seq.). (2) A bank holding company, or a subsidiary o f a bank holding company which is a bank (other than a national bank or a bank operating under the Code o f Law for the District o f Columbia or a bank insured by the Federal Deposit Insurance Corporation), or a subsidiary or a department or a division o f such a subsidiary, which is a munici pal securities dealer shall not permit a person to be associated with it as a municipal securities prin cipal or municipal securities representative unless it has filed with the Board an original and two copies o f Form MSD-4, “ Uniform Application for Municipal Securities Principal or Municipal Securities Representative Associated with a Bank Municipal Securities Dealer,” completed in accord ance with the instructions contained therein, for that person. Form MSD-4 is prescribed by the Board for purposes o f paragraph (b) o f Municipal Securities Rulemaking Board rule G-7, “ Informa tion Concerning Associated Persons.” (3) Whenever a municipal securities dealer receives a statement pursuant to paragraph (c) o f Municipal Securities Rulemaking Board Rule G-7, “ Information Concerning Associated Persons,” from a person for whom it has filed a Form MSD4 with the Board pursuant to subparagraph (2) of this paragraph, such dealer shall, within ten days thereafter, file three copies o f that statement with the Board accompanied by an original and two copies o f a transmittal letter which includes the name o f the dealer and a reference to the material transmitted identifying the person involved and is signed by a municipal securities principal associ ated with the dealer. (4) Within thirty days after the termination o f the association o f a municipal securities princi pal or municipal securities representative with a municipal securities dealer which has filed a Form MSD-4 with the Board for that person pursuant to subparagraph (2) o f this paragraph, such dealer shall file an original and two copies o f a notifica (iii) Within 20 days after receipt o f the appli cant’s brief or statement the registered clearing agency may file an answer thereto, and within 10 days o f receipt o f any such answer the appli cant may file a reply. Any such papers not filed within the time provided by items (A), (B), or (C) will not be received except upon special permission o f the Board. (iv) On its own motion, the Board may direct that the record under review be supplemented with such additional evidence as it may deem relevant. Nevertheless, the registered clearing agency and persons who may be aggrieved by such clearing agency’s action shall not be en titled to adduce evidence not presented in the proceedings before the registered clearing agency unless it is shown to the satisfaction o f the Board that such additional evidence is material and that there were reasonable grounds for failure to present such evidence in the proceedings be fore the registered clearing agency. Any request for leave to adduce additional evidence shall be filed promptly so as not to delay the dis position o f the proceeding. (v) Oral argument before the Board may be requested by the applicant or the registered clear ing agency as follows: (A) by the applicant with his brief or statement or within 10 days after receipt o f the registered clearing agency’s answer, or (B) by the registered clearing agency with its answer. The Board, in its discretion, may grant or deny any request for oral argument and, where it deems it appropriate to do so, the Board will consider an application on the basis o f the papers filed by the parties, without oral argument. (vi) The Board’s Rules o f Practice for Formal Hearings shall apply to review proceedings under this rule to the extent that they are not inconsist ent with this rule. Attention is directed partic of securities dealers. 13 § 225.6 R E G U L A T IO N Y the date o f notification 13 equals or exceeds 10 per cent o f the company’s consolidated net worth as o f the date o f such notice. The 45-day period shall begin to run from the date such notice is received by the Reserve Bank, which shall promptly acknowledge receipt thereof in writing. Each notice filed hereunder shall furnish the following information: (1) the title o f the security to be purchased or redeemed, and the purposes o f the proposed transaction; (2) the number o f shares o f that security to be purchased or redeemed; the total number of shares o f equity securities outstanding as o f the date o f the notice, by class; and the number of shares o f all other equity securities o f the com pany purchased or redeemed by it over the pre ceding 12-month period, by class; (3) the consideration to be paid for the shares to be purchased or redeemed, and the considera tion paid for all other shares o f the company s equity securities purchased or redeemed by it over the preceding 12-month period, by class; (4) the date upon which, or that period of time during which, the purchase or redemption tion o f termination with the Board on Form MSD-5, “ Uniform Termination Notice for Munic ipal Securities Principal or Municipal Securities Representative Associated with a Bank Municipal Securities Dealer,” completed in accordance with the instructions contained therein. (5) A municipal securities dealer which files a Form MSD-4, Form MSD-5, or statement with the Board under this paragraph shall retain a copy o f each such Form MSD-4, Form MSD-5 or state ment until at least three years after the termination o f the employment or other association with such dealer o f the municipal securities principal or municipal securities representative to whom the form or statement relates. (6) The date that the Board receives a Form MSD-4, Form MSD-5, or statement filed with the Board under this paragraph shall be the date o f filing. Such a Form M SD-4, Form MSD-5, or statement which is not prepared and executed in accordance with the applicable requirements may be returned as unacceptable for filing. Acceptance for filing shall not constitute any finding that a Form MSD-4, Form MSD-5, or statement has been completed in accordance with the applicable requirements or that any information reported therein is true, current, complete, or not mislead ing. Every Form MSD-4, Form MSD-5, or state ment filed with the Board under this paragraph shall constitute a filing with the Securities and Ex change Commission for purposes o f section 17(c)(1) o f the Act (15 U.S.C. section 7 8 q (c)(l) and a “ report,” “ application,” or “ document” within the meaning o f section 32(a) o f the A ct will occur; (5) if known, the names o f persons from whom shares are to be purchased or redeemed in such transaction, and, if known, the names o f persons from whom shares were purchased or redeemed in the preceding 12 months; (6) if debt is to be incurred or has been in curred by the company or a subsidiary in con nection with the purchase or redemption or any other such purchase or redemption over the pre ceding 12 months, a description o f the terms o f the debt, including the identity o f the obligee, and the interest rate, maturity and repayment schedule (15 U.S.C. 78ff(a)). S E C T IO N 2 2 5 .6 — C O R P O R A T E P R A C T IC E S o f the debt; (7) if the transaction is related in any way to (a) Purch ase or redem ption b y a bank hold ing a transfer o f control o f the company, a descrip co m p a n y o f its ow n shares. N o bank holding tion o f the terms o f the transfer, including the company shall purchase or redeem any shares o f identity o f the transferee and a copy o f any agree any class o f its outstanding equity securities with ments relating to such transfer; and out giving at least 45 days prior notice thereof (8) a current and pro forma consolidated to its Federal Reserve Bank if (i) the gross con balance sheet o f the holding company. sideration to be paid for such purchase or redemp The Reserve Bank may permit a purchase or tion is equal to 10 per cent or more o f the com redemption to be accomplished prior to the expipany’s consolidated net worth as o f the date o f notification, or (ii) the gross consideration to n For the purposes of this regulation “ net consideration ’ be paid for such purchase or redemption when is the gross consideration paid by the company for all of its equity securities purchased or redeemed during the aggregated with the net consideration paid by the period minus the gross consideration received for all ol company for all purchases or redemptions o f its its equity securities sold during the period other than as part of a new issue. equity securities during the 12 months preceding 14 S T A T U T O R Y A P P E N D IX R E G U L A T IO N Y ration o f the 45-day period if it deterimines that the repurchase or redemption would not constitute an unsafe or unsound practice and would not violate any applicable law, rule, regulation or order, or any condition imposed by, or written agreement with, the Board. STATUTORY APPENDIX BANK H O L D IN G COM PANY ACT OF 1956 A c t o f M a y 9 , 1 9 5 6 (7 0 Stat. 1 3 3 ) T o define bank holding companies, control their future expansion, and require divestment o f their nonbanking interests. Be it enacted by the Senate and House of Rep resentatives of the United States of America in Congress assembled, That this A ct may be cited as the “ Bank Holding Company A ct o f 1956” . D efinitions B ank h old in g co m p an y Sec . 2. ( a ) ( 1 ) Except as provided in para graph (5 ) o f this subsection, “ bank holding com pany” means any company which has control over any bank or over any company that is or becomes a bank holding company by virtue o f this Act. (2 ) Any company has control over a bank or over any company if— (A ) the company directly or indirectly or acting through one or more other persons owns, controls, or has power to vote 25 per centum or more o f any class o f voting secu rities o f the bank or company; (B ) the company controls in any manner the election o f a majority o f the directors or trustees o f the bank or company; or (C ) the Board determines, after notice and opportunity for hearing, that the com pany directly or indirectly exercises a con trolling influence over the management or policies o f the bank or company. (3 ) For the purposes o f any proceeding under paragraph ( 2 ) ( C ) o f this subsection, there is a presumption that any company which directly or indirectly owns, controls, or has power to vote less than 5 per centum o f any class o f voting securities o f a given bank or company does not have control over that bank or company. (4 ) In any administrative or judicial pro ceeding under this Act, other than a proceed ing under paragraph ( 2 ) ( C ) o f this subsection, a company may not be held to have had con trol over any given bank or company at any given time unless that company, at the time in question, directly or indirectly owned, con trolled, or had power to vote 5 per centum or more o f any class o f voting securities o f the bank or company, or had already been found to have control in a proceeding under para graph (2 ) (C ). (5 ) Notwithstanding any other provision of this subsection. (A ) N o bank and no company owning or controlling voting shares o f a bank is a bank holding company by virtue o f its ownership or control o f shares in a fiduciary capacity, except as provided in paragraphs (2 ) and (3 ) o f subsection (g ) o f this section. For the purpose o f the preceding sentence, bank shares shall not be deemed to have been ac quired in a fiduciary capacity if the acquir ing bank or company has sole discretionary authority to exercise voting rights with re spect thereto; except that this limitation is applicable in the case o f a bank or company acquiring such shares prior to the date o f enactment o f the Bank Holding Company A ct Amendments o f 1970 only if the bank or company has the right consistent with its obligations under the instrument, agreement, or other arrangement establishing the fidu ciary relationship to divest itself o f such vot ing rights and fails to exercise that right to divest within a reasonable period not to ex ceed one year after the date o f enactment o f the Bank Holding Company A ct Amend ments o f 1970. (B ) N o company is a bank holding com pany by virtue o f its ownership or control o f shares acquired by it in connection with its underwriting o f securities if such shares are held only for such period o f time as will permit the sale thereof on a reasonable basis. (C ) N o company formed for the sole purpose o f participating in a proxy solicita tion is a bank holding company by virtue o f 15 R E G U L A T IO N Y S T A T U T O R Y A P P E N D IX its control o f voting rights o f shares ac quired in the course o f such solicitation. (D ) N o company is a bank holding com pany by virtue o f its ownership or control of shares acquired in securing or collecting a debt previously contracted in good faith, until two years after the date o f acquisition. The Board is authorized upon application by a company to extend, from time to time for not more than one year at a time, the twoyear period referred to herein for disposing o f any shares acquired by a company in the regular course o f securing or collecting a debt previously contracted in good faith, if, in the Board’s judgment, such an extension would not be detrimental to the public inter est, but no such extension shall in the aggre gate exceed three years. (E ) N o company is a bank holding com pany by virtue o f its ownership or control o f any State chartered bank or trust com pany which is wholly owned by thrift insti tutions and which restricts itself to the ac ceptance o f deposits from thrift institutions, deposits arising out o f the corporate business o f its owners, and deposits o f public moneys. (F) N o trust company or mutual savings bank which is an insured bank under the Federal Deposit Insurance A ct is a bank holding company by virtue o f its direct or indirect ownership or control o f one bank located in the same State, if (i) such owner ship or control existed on the date o f enact ment o f the Bank Holding Company Act Amendments o f 1970 and is specifically authorized by applicable State law, and (ii) the trust company or mutual savings bank does not after that date acquire an interest in any company that, together with any other interest it holds in that company, will exceed 5 per centum o f any class o f the voting shares o f that company, except that this limi tation shall not be applicable to investments o f the trust company or mutual savings bank, direct and indirect, which are otherwise in accordance with the limitations applicable to national banks under section 5136 o f the Revised Statutes (12 U.S.C. 24). (6 ) For the purposes o f this Act, any suc cessor to a bank holding company shall be deemed to be a bank holding company from the date on which the predecessor company became a bank holding company. 16 Company (b ) “ Company” means any corporation, part nership, business trust, association, or similar or ganization, or any other trust unless by its terms it must terminate within twenty-five years or not later than twenty-one years and ten months after the death o f individuals living on the effective date o f the trust, but shall not include any cor poration the majority o f the shares o f which are owned by the United States or by any State. “ Company covered in 1970” means a company which becomes a bank holding company as a result o f the enactment o f the Bank Holding Company Act Amendments o f 1970 and which would have been a bank holding company on June 30, 1968, if those amendments had been enacted on that date. B ank (c ) “ Bank” means any institution organized under the laws o f the United States, any State o f the United States, the District o f Columbia, any territory o f the United States, Puerto Rico, Guam, American Samoa, or the Virgin Islands which (1 ) accepts deposits that the depositor has a legal right to withdraw on demand, and (2) engages in the business o f making commercial loans. Such term does not include any organiza tion operating under section 25 or section 25(a) o f the Federal Reserve Act, or any organization which does not do business within the United States except as an incident to its activities out side the United States. “ District bank” means any bank organized or operating under the Code o f Law for the District o f Columbia. Subsidiary (d ) “ Subsidiary” , with respect to a specified bank holding company, means (1 ) any company 25 per centum or more o f whose voting shares (excluding shares owned by the United States or by any company wholly owned by the United States) is directly or indirectly owned or con trolled by such bank holding company, or is held by it with power to vote; (2) any company the election o f a majority o f whose directors is con trolled in any manner by such bank holding com pany; or (3) any company with respect to the management or policies o f which such bank hold ing company has the power, directly or indirectly. S T A T U T O R Y A P P E N D IX R E G U L A T IO N Y to exercise a controlling influence, as determined by the Board, after notice and opportunity for hearing. as amended, shall not be affected by the fact that a transaction takes place wholly or partly outside the United States or that a company is organized or operates outside the United States: Provided, however, That the prohibitions o f section 4 o f this A ct shall not apply to shares o f any company organized under the laws o f a foreign country that does not do any business within the United States, if such shares are held or acquired by a bank holding company that is principally engaged in the banking business outside the United States. Successor (e ) The term “ successor” shall include any company which acquires directly or indirectly from a bank holding company shares o f any bank, when and if the relationship between such company and the bank holding company is such that the transaction effects no substantial change in the control o f the bank or beneficial ownership o f such shares o f such bank. The Board may, by regulation, further define the term “ successor” to the extent necessary to prevent evasion o f the purposes o f this Act. T h rift institution (i) The term “ thrift institution” means (1 ) a domestic building and loan or savings and loan association, (2 ) a cooperative bank without capital stock organized and operated for mutual purposes and without profit, or (3 ) a mutual sav ings bank not having capital stock represented by shares. B oard ( f ) “ Board” means the Board o f Governors o f the Federal Reserve System. [U.S.C., title 12, sec. 1841. As amended by Acts of July 1, 1966 (80 Stat. 236) and Dec. 31, 1970 (84 Stat. 1760). The date of enactment of the Bank Holding Com pany Act Amendments of 1970 referred to in this section is Dec. 31, 1970.] Indirect ow nership and control (g) For the purposes o f this Act— (1 ) shares owned or controlled by any sub sidiary o f a bank holding company shall be deemed to be indirectly owned or controlled by such bank holding company; (2 ) shares held or controlled directly or indirectly by trustees for the benefit o f (A ) a company, (B ) the shareholders or members o f a company, or (C) the employees (whether exclusively or not) o f a company, shall be deemed to be controlled by such company; and (3 ) shares transferred after January 1, 1966, by any bank holding company (o r by any company which, but for such transfer, would be a bank holding company) directly or indi rectly to any transferee that is indebted to the transferor, or has one or more officers, direc tors, trustees, or beneficiaries in common with or subject to control by the transferor, shall be deemed to be indirectly owned or controlled by the transferor unless the Board, after op portunity for hearing, determines that the trans feror is not in fact capable o f controlling the transferee. A cquisition of Bank Shares or A ssets T ransactions requiring ap p roval; exceptions Sec. 3. (a ) It shall be unlawful, except with the prior approval o f the Board, (1 ) for any action to be taken that causes any company to become a bank holding company; (2 ) for any action to be taken that causes a bank to become a subsidiary o f a bank holding company; (3) for any bank holding company to acquire direct or indirect ownership or control o f any voting shares o f any bank if, after such acquisition, such company will directly or indirectly own or control more than 5 per centum o f the voting shares o f such bank; (4 ) for any bank holding company or subsidiary thereof, other than a bank, to acquire all or substantially all o f the assets o f a bank; or (5 ) for any bank holding company to merge or consolidate with any other bank hold ing company. Notwithstanding the foregoing this prohibition shall not apply to (A ) shares acquired by a bank, (i) in good faith in a fiduciary capac ity, except where such shares are held under a trust that constitutes a company as defined in section 2(b) and except as provided in paragraphs (2) and (3) o f section 2(g), or (ii) in the reg Extraterritorial application (h ) The application o f this Act and o f section 23A o f the Federal Reserve A ct (12 U.S.C. 371), 17 S T A T U T O R Y A P P E N D IX R E G U L A T IO N Y ten calendar days o f such date if the Board advises the Comptroller o f the Currency or the State supervisory authority that an emergency exists re quiring expeditious action. If the thirty-day notice period applies and if the Comptroller o f the Cur rency or the State supervisory authority so notified by the Board disapproves the application in writ ing within this period, the Board shall forthwith give written notice o f that fact to the applicant. Within three days after giving such notice to the applicant, the Board shall notify in writing the ap plicant and the disapproving authority o f the date for commencement o f a hearing by it on such ap plication. Any such hearing shall be commenced not less than ten nor more than thirty days after the Board has giving written notice to the appli cant o f the action o f the disapproving authority. The length o f any such hearing shall be determined by the Board, but it shall afford all interested par ties a reasonable opportunity to testify at such hearing. At the conclusion thereof, the Board shall, by order, grant or deny the application on the basis o f the record made at such hearing. In the event o f the failure o f the Board to act on any application for approval under this section within the ninetyone-day period which begins on the date o f sub mission to the Board o f the complete record on that application, the application shall be deemed to have been granted. Notwithstanding any other provision o f this subsection, if the Board finds that it must act immediately on any application for approval under this section in order to prevent the probable failure o f a bank or bank holding com pany involved in a proposed acquisition, merger, or consolidation transaction, the Board may dis pose with the notice requirements o f this subsec H earin gs on applications tion, and if notice is given, the Board may request (b ) Upon receiving from a company any appli that the views and recommendations o f the C om p troller o f the Currency or the State supervisory cation for approval under this section, the Board authority, as the case may be, be submitted im shall give notice to the Comptroller o f the Cur mediately in any form or by any means acceptable rency, if the applicant company or any bank the to the Board. If the Board has found pursuant to voting shares or assets o f which are sought to be this subsection either that an emergency exists re required is a national banking association or a quiring expeditious action or that it must act im District bank, or to the appropriate supervisory mediately to prevent probable failure, the Board authority o f the interested State, if the applicant may grant or deny any such application without a company or any bank the voting shares or assets hearing notwithstanding any recommended dis o f which are sought to be acquired is a State approval by the appropriate supervisory authority. bank, in order to provide for the submission o f the views and recommendations o f the Comptroller o f the Currency or the State supervisory authority, F actors to be considered as the case may be. The views and recommenda (c ) The Board shall not approve— tions shall be submitted within thirty calendar (1 ) any acquisition or merger or consolidadays o f the date on which notice is given, or within ular course o f securing or collecting a debt pre viously contracted in good faith, but any shares acquired after the date o f enactment o f this Act in securing or collecting any such previously con tracted debt shall be disposed o f within a period o f two years from the date on which they were acquired; or (B ) additional shares acquired by a bank holding company in a bank in which such bank holding company owned or controlled a majority o f the voting shares prior to such acqui sition. The Board is authorized upon application by a bank to extend, from time to time for not more than one year at a time, the two-year period referred to above for disposing o f any shares ac quired by a bank in the regular course o f securing or collecting a debt previously contracted in good faith, if, in the Board’s judgment, such an exten sion would not be detrimental to the public in terest, but no such extension shall in the aggregate exceed three years. For the purpose o f the pre ceding sentence, bank shares acquired after the date o f enactment o f the Bank Holding Company A ct Amendments o f 1970 shall not be deemed to have been acquired in good faith in a fiduciary capacity if the acquiring bank or company has sole discretionary authority to exercise voting rights with respect thereto, but in such instances acquisitions may be made without prior approval o f the Board if the Board, upon application filed within ninety days after the shares are acquired, approves retention or, if retention is disapproved, the acquiring bank disposes o f the shares or its sole discretionary voting rights within two years after issuance o f the order o f disapproval. 18 R E G U L A T IO N Y S T A T U T O R Y A P P E N D IX shall become and remain an insured bank as such term is defined in section 3 (h ) o f the Federal Deposit Insurance Act. tion under this section which would result in a monopoly, or which would be in furtherance o f any combination or conspiracy to m onopo lize or to attempt to monopolize the business o f banking in any part o f the United States, or (2 ) any other proposed acquisition or merger or consolidation under this section whose effect in any section o f the country may be sub stantially to lessen competition, or to tend to create a monopoly, or which in any other man ner would be in restraint or trade, unless it finds that the anticompetitive effects o f the proposed transactions are clearly outweighed in the public interest by the probable effect o f the transaction in meeting the convenience and needs o f the community to be served. [U.S.C., title 12, sec. 1842. As amended by Acts of July 1, 1966 (80 Stat. 237); Dec. 31, 1970 (84 Stat. 1763) and November 16, 1977 (91 Stat. 1389). The date of enactment of the Bank Holding Company Act Amendments of 1970 referred to in this section is Dec. 31, 1970; the date of the amendment referred to in paragraph (d) is July 1, 1966.] Interests in N onbanking Organizations P rohibitions S e c . 4. (a ) Except as otherwise provided in this Act, no bank holding company shall— In every case, the Board shall take into considera (1 ) after the date o f enactment o f this Act tion the financial and managerial resources and acquire direct or indirect ownership or con future prospects o f the company or companies and trol o f any voting shares o f any company which the banks concerned, and the convenience and is not a bank, or needs o f the community to be served. (2 ) after two years from the date as o f which it becomes a bank holding company, or in the case o f a company which has been continuously A cqu isition s in other states affiliated since May 15, 1955, with a company which was registered under the Investment (d ) Notwithstanding any other provision o f Company Act o f 1940, prior to May 15, 1955, this section, no application shall be approved in such a manner as to constitute an affiliated under this section which will permit any bank company within the meaning o f that Act, after holding company or any subsidiary thereof to December 31, 1978, or in the case o f any com acquire, directly or indirectly, any voting shares pany which becomes, as a result o f the enact of, interest in, or all or substantially all o f the ment o f the Bank Holding Company Act assets o f any additional bank located outside of Amendments o f 1970, a bank holding com the State in which the operations o f such bank pany on the date o f such enactment, after De holding company’s banking subsidiaries were cember 31, 1980, retain direct or indirect principally conducted on the effective date o f this ownership or control o f any voting shares o f amendment or the date on which such company any company which is not a bank or bank hold became a bank holding company, whichever is ing company or engage in any activities other later, unless the acquisition o f such shares or than (A ) those o f banking or o f managing assets o f a State bank by an out-of-State bank or controlling banks and other subsidiaries holding company is specifically authorized by the authorized under this Act or o f furnishing serv statute laws o f the State in which such bank is ices to or performing services for its subsidiaries, located, by language to that effect and not merely and (B) those permitted under paragraph (8) by implication. For the purposes o f this section, o f subsection (c ) o f this section subject to all the State in which the operations o f a bank hold the conditions specified in such paragraph or in ing company’s subsidiaries are principally con any order or regulation issued by the Board ducted is that State in which total deposits o f all under such paragraph: Provided, That a com such banking subsidiaries are largest. pany covered in 1970 may also engage in those activities in which directly or through a sub sidiary (i) it was lawfully engaged on June 30, D ep osit insurance 1968 (or on a date subsequent to June 30, 1968 (e) Every bank that is a holding company and in the case o f activities carried on as the result every bank that is a subsidiary o f such a company o f the acquisition by such company or subsidi 19 S T A T U T O R Y A P P E N D IX R E G U L A T IO N Y D iv orce m en t o f shares ary, pursuant to a binding written contract entered into on or before June 30, 1968, of another company engaged in such activities at the time o f the acquisition), and (ii) it has been continuously engaged since June 30, 1968 (or such subsequent date). The Board by order, after opportunity for hearing, may terminate the authority conferred by the preceding proviso on any company to engage directly or through a subsidiary in an activity otherwise permitted by that proviso if it determines, having due re gard to the purposes o f this Act, that such action is necessary to prevent undue concentration o f resources, decreased or unfair competition, con flicts o f interest, or unsound banking practices; and in the case o f any such company control ling a bank having bank assets in excess of $60,000,000 on or after the date o f enactment o f the Bank Holding Company Act Amend ments o f 1970 the Board shall determine, with in two years after such date (or, if later, within two years after the date on which the bank assets first exceed $60,000,000), whether the authority conferred by the preceding proviso with respect to such company should be ter minated as provided in this sentence. Nothing in this paragraph shall be construed to author ize any bank holding company referred to in the preceding proviso, or any subsidiary there of, to engage in activities authorized by that proviso through the acquisition, pursuant to a contract entered into after June 30, 1968, of any interest in or the assets o f a going concern engaged in such activities. Any company which is authorized to engage in any activity pursuant to the preceding proviso or subsection (d ) o f this section but, as a result o f action o f the Board, is required to terminate such activity may (notwithstanding any otherwise applicable time limit prescribed in this paragraph) retain the ownership or control o f shares in any com pany carrying on such activity for a period of ten years from the date on which its authority was so terminated by the Board. (b ) After two years from the date o f enact ment o f this Act, no certificate evidencing shares o f any bank holding company shall bear any state ment purporting to represent shares of any other company except a bank or a bank holding com pany, nor shall the ownership, sale, or transfer o f shares o f any bank holding company be condi tioned in any manner whatsoever upon the owner ship, sale, or transfer o f shares o f any other company except a bank or a bank holding com pany. Exemptions (c) The prohibitions in this section shall not apply to (i) any company that was on January 4, 1977, both a bank holding company and a labor, agricultural, or horticultural organization exempt from taxation under section 501 o f the Internal Revenue Code o f 1954, or to any labor, agricultural, or horticultural organization to which all or sub stantially all o f the assets o f such company are here after transferred, or (ii) a company covered in 1970 more than 85 per centum o f the voting stock o f which was collectively owned on June 30, 1968, and continuously thereafter, directly or indirectly, by or for members o f the same family, or their spouses, who are lineal descendants o f common ancestors: and such prohibitions shall not, with respect to any other bank holding company, apply to— (1) shares o f any company engaged or to be engaged solely in one or more o f the following activities; (A) holding or operating properties used wholly or substantially by any banking subsidiary o f such bank holding company in the operations o f such banking subsidiary or acquired for such future use: or (B) conducting a safe deposit business: or (C) furnishing services to or performing services for such bank holding company or its banking subsidiaries: or (D) liquidating assets acquired from such bank hold ing company or its banking subsidiaries or ac quired from any other source prior to May 9, 1956, or the date on which such company became a bank holding company, whichever is later; The Board is authorized, upon application by a bank holding company, to extend the two-year period referred to in paragraph (2 ) above from time to time as to such bank holding company for not more than one year at a time, if, in its judgment, such an extension would not be detri mental to the public interest, but no such exten sions shall in the aggregate exceed three years. (2) shares acquired by a bank holding company or any o f its subsidiaries in satisfaction o f a debt previous contracted in good faith, but such shares shall be disposed o f within a period o f two years from the date on which they were acquired, except that the Board is authorized upon application by such bank holding company to extend such period 20 R E G U L A T IO N Y S T A T U T O R Y A P P E N D IX o f two years from time to time as to such holding company for not more than one year at a time if, in its judgment, such an extension would not be detrimental to the public interest, but no such extensions shall extend beyond a date five years after the date on which such shares were acquired; (9) shares held or activities conducted by any company organized under the laws o f a foreign country the greater part o f whose business is conducted outside the United States, if the Board by regulation or order determines that, under the circumstances and subject to the conditions set forth in the regulation or order, the exemption would not be substantially at variance with the purposes o f this Act and would be in the public interest; (3) shares acquired by such bank holding com pany from any o f its subsidiaries which subsidiary has been requested to dispose o f such shares by any Federal or State authority having statutory power to examine such subsidiary, but such bank holding company shall dispose o f such shares within a period o f two years from the date on which they were acquired; (10) shares lawfully acquired and owned prior to May 9, 1956, by a bank which is a bank holding company, or by any o f its wholly owned subsidiaries; (4) shares held or acquired by a bank in good faith in a fiduciary capacity, except where such shares are held under a trust that constitutes a company as defined in section 2(b) and except as provided in paragraph (2) and (3) o f section 2(g); (11) shares owned directly or indirectly by a company covered in 1970 in a company which does not engage in any activities other than those in which the bank holding company, or its subsidiaries, may engage by virtue o f this section, but nothing in this paragraph authorizes any bank holding company, or subsidiary thereof, to acquire any interest in or the assets o f any going concern (except pursuant to a binding written contract entered into before June 30, 1968, or pursuant to another provision o f this Act) other than one which was a subsidiary on June 30, 1968; (5) shares which are o f the kinds and amounts eligible for investment by national banking asso ciations under the provisions o f section 5136 o f the Revised Statutes; (6) shares o f any company which do not in clude more than 5 per centum o f the outstanding voting shares o f such company; (7) shares o f an investment company which is not a bank holding company and which is not engaged in any business other than investing in securities, which securities do not include more than 5 per centum o f the outstanding voting shares o f any company; (12) shares retained or acquired, or activities engaged in, by any company which becomes, as a result o f the enactment o f the Bank Holding Company Act Amendments o f 1970, a bank holding company on the date o f such enact ment, or by any subsidiary thereof, if such company— (8) shares o f any company the activities o f which the Board after due notice and oppor tunity for hearing has determined (by order or regulation) to be so closely related to banking or managing or controlling banks as to be a proper incident thereto. In determining whether a particular activity is a proper incident to bank ing or managing or controlling banks the Board shall consider whether its performance by an affiliate o f a holding company can reasonably be expected to produce benefits to the public, such as greater convenience, increased competition, or gains in efficiency, that outweigh possible adverse effects, such as undue concentration o f resources, decreased or unfair competition, conflicts o f in terests, or unsound banking practices. In orders and regulations under this subsection, the Board may differentiate between activities commenced de novo and activities commenced by the acquisi tion, in whole or in part, o f a going concern; (A) within the applicable time limits pre scribed in subsection (a)(2) o f this section (i) ceases to be a bank holding company, or (ii) ceases to retain direct or indirect owner ship or control o f those shares and to engage in those activities not authorized under this section; and (B) complies with such other conditions as the Board may by regulation or order prescribe; or (13) shares of, or. activities conducted by, any company which does no business in the United States except as an incident to its international or foreign business, if the Board by regulation or order determines that, under the circumstances and subject to the conditions set forth in the regulation or order, the exemption would not be 21 R E G U L A T IO N Y S T A T U T O R Y A P P E N D IX [U. S. C., title 12, sec. 1843. As amended by Acts of July 1, 1966 (80 Stat. 238); Dec. 31, 1970 (84 Stat. 1763) and November 16, 1977 (91 Stat. 1389).] substantially at variance with the purposes o f this Act and would be in the public interest. In the event o f the failure o f the Board to act on any application for an order under paragraph (8) o f this subsection within the ninety-one-day period which begins on the date o f submission to the Board o f the complete record on that application, the application shall be deemed to have been granted. The Board shall include in its annual report to the Congress a description and a statement o f the rea sons for approval o f each activity approved by it by order or regulation under such paragraph during the period covered by the report. A dministration Registration statements Sec. 5. (a) Within one hundred and eighty days after the date o f enactment o f this Act, or within one hundred and eighty days after becoming a bank holding company, whichever is later, each bank holding company shall register with the Board on forms prescribed by the Board, which shall include such information with respect to the financial con dition and operations, management, and inter company relationships o f the bank holding com pany and its subsidiaries, and related matters, as the Board may deem necessary or appropriate to carry out the purposes o f this Act. The Board may, in its discretion, extend the time within which a bank holding company shall register and file the requisite information. Hardship exemption (d) T o the extent that such action would not be substantially at variance with the purposes o f this Act and subject to such conditions as it considers necessary to protect the public interest, the Board by order, after opportunity for hearing, may grant exemptions from the provisions o f this section to any bank holding company which controlled one bank prior to July 1, 1968, and has not thereafter ac quired the control o f any other bank in order (1) to avoid disrupting business relationships that have existed over a long period o f years without adversely affecting the banks or communities involved, or (2) to avoid forced sales o f small locally owned banks to purchasers not similarly representative o f com munity interests, or (3) to allow retention o f banks that are so small in relation to the holding company’s total interests and so small in relation to the banking market to be served as to minimize the likelihood that the bank’s powers to grant or deny credit may be influenced by a desire to further the holding company’s other interests. Regulations (b) The Board is authorized to issue such regula tions and orders as may be necessary to enable it to administer and carry out the purposes o f this Act and prevent evasions thereof. Reports and examinations (c) The Board from time to time may require reports under oath to keep it informed as to whether the provisions o f this Act and such regulations and orders issued thereunder have been complied with; and the Board may make examinations o f each bank holding company and each subsidiary thereof, the cost o f which shall be assessed against, and paid by, such holding company. The Board shall, as far as possible, use the reports o f examinations made by the Comptroller o f the Currency, the Federal Deposit Insurance Corporation, or the appropriate State bank supervisory authority for the purposes o f this section. Retention o f shares after repeal o f exem ption (e) With respect to shares which were not sub ject to the prohibitions o f this section as originally enacted by reason o f any exemption with respect thereto but which were made subject to such pro hibitions by the subsequent repeal o f such exemp tion, no bank holding company shall retain direct or indirect ownership or control o f such shares after five years from the date o f the repeal o f such ex emption, except as provided in paragraph (2) o f subsection (a). Any bank holding company subject to such five-year limitation on the retention o f nonbanking assets shall endeavor to divest itself o f such shares promptly and such bank holding company shall report its progress in such divestiture to the Board two years after repeal o f the exemp tion applicable to it and annually thereafter. Annual Reports o f Board (d) Before the expiration o f two years following the date o f enactment o f this Act, and each year thereafter in the Board’s annual report to the Con gress, the Board shall report to the Congress the results o f the administration o f this Act, stating what, if any, substantial difficulties have been en countered in carrying out the purposes o f this Act, and any recommendations as to changes in the law which in the opinion o f the Board would be desirable. 22 R E G U L A T IO N Y S T A T U T O R Y A P P E N D IX (e) (1) Notwithstanding any other provision of this Act, the Board may, whenever it has reasonable cause to believe that the continuation by a bank holding company o f any activity or o f ownership or control of any o f its nonbank subsidiaries, other than a nonbank subsidiary o f a bank, constitutes a serious risk to the financial safety, soundness, or stability o f a bank holding company subsidiary bank and is inconsistent with sound banking principles or with the purposes o f this Act or with the Financial Institutions Supervisory Act o f 1966, order the bank holding company or any such nonbank subsidiaries, after due notice and opportunity for hearing, and after considering the views o f the bank’s primary supervisor, which shall be the Comptroller o f the Currency in the case o f a national bank or the Fed eral Deposit Insurance Corporation and the appro priate State supervisory authority in the case o f an insured nonmember bank, to terminate such activities or to terminate (within one hundred and twenty days or such longer period as the Board may direct in unusual circumstances) its ownership or control o f any such subsidiary either by sale or by distribution o f the shares o f the subsidiary to the shareholders o f the bank holding company. Such distribution shall be pro rata with respect to all o f the shareholders o f the distributing bank holding company, and the holding company shall not make any charge to its shareholders arising out o f such a distribution. witnesses and the production o f documents provided for in this subsection may be required from any place in any State or in any territory or other place subject to the jurisdiction o f the United States at any desig nated place where such proceeding is being con ducted. Any party to proceedings under this Act may apply to the United States District Court for the District o f Columbia, or the United States district court for the judicial district or the United States court in any territory in which such proceeding is being conducted or where the witness resides or carries on business, for the enforcement o f any subpoena or subpoena duces tecum issued pursuant to this subsection and such courts shall have jurisdic tion and power to order and require compliance therewith. Witnesses subpoenaed under this subsec tion shall be paid the same fees and mileage that are paid witnesses in the district courts o f the United States. Any service required under this subsection may be made by registered mail, or in such other manner reasonably calculated to give actual notice as the Board may by regulation or otherwise provide. Any court having jurisdiction o f any proceeding instituted under this subsection may allow to any such party such reasonable expenses and attorneys’ fees as it seems just and proper. Any person who willfully shall fail or refuse to attend and testify or to answer any lawful inquiry or to produce books, papers, correspondence, memoranda, contracts, agreements, or other records, if in such person’s power so to d o , in obedience to the subpoena o f the (2) The Board may in its discretion apply to the United States district court within the jurisdiction o f which the principal office o f the holding company is located, for the enforcement o f any effective and outstanding order issued under this section, and such court shall have jurisdiction and power to order and require compliance therewith, but except as provided in section 9 o f this Act, no court shall have jurisdiction to affect by injunction or otherwise the issuance or enforcement o f any notice or order under this section, or to review, modify, suspend, terminate, or set aside any such notice or order. Board, shall be guilty o f a misdemeanor and, upon conviction, shall be subject to a fine o f not more than $1,000 or, to imprisonment for a term o f not more than one year or both. [U. S. G , title 12, sec. 1844.] [Section 6 was repealed by section 9 o f the A ct of July 1, 1966 (80 Stat. 240).] (f) In the course o f or in connection with an appli cation, examination, investigation or other proceed ing under this Act, the Board, or any member or designated representative thereof, including any person designated to conduct any hearing under this Act, shall have the power to administer oaths and affirmations, to take or cause to be taken depositions, and to issue, revoke, quash, or modify subpoenas and subpoenas duces tecum: and the Board is em powered to make rules and regulations to effectuate the purposes o f this subsection. The attendance o f R eservation of R ights to States States’ rights Sec. 7. The enactment by the Congress o f the Bank Holding Company Act o f 1956 shall not be construed as preventing any State from exercising such powers and jurisdiction which it now has or may hereafter have with respect to banks, bank holding companies, and subsidiaries thereof. [U. S. G , title 12, sec. 1846.] 23 R E G U L A T IO N Y S T A T U T O R Y A P P E N D IX recover the amount assessed by action in the appro priate United States district court. In such action the validity and appropriateness o f the final order imposing the penalty shall not be subject to review. Penalties Criminal penalties Sec. 8 (a). Any company which willfully violates any provision o f this Act, or any regulation or order issued by the Board pursuant thereto, shall upon con viction be fined not more than $1,000 for each day during which the violation continues. Any individual who willfully participates in a violation of any pro vision o f this Act shall upon conviction be fined not more than $10,000 or imprisoned not more than one year, or both. Every officer, director, agent, and em ployee o f a bank holding company shall be subject to the same penalties for false entries in any book, re port, or statement o f such bank holding company as are applicable to officers, directors, agents, and employees o f member banks for false entries in any books, reports, or statements o f member banks under section 1005 o f title 18, United States Code. (b) (1) Any company which violates or any in dividual who participates in a violation o f any pro vision o f this Act, or any regulation or order issued pursuant thereto, shall forfeit and pay a civil penalty o f not more than $1,000 per day for each day during which such violation continues. The penalty shall be assessed and collected by the Board by written notice. As used in the section, the term “ violates” includes without any limitation any action (alone or with another or others) for or toward causing, bringing about, participating in, counseling, or aiding or abetting a violation. (2) In determining the amount o f the penalty the Board shall take into account the appropriateness o f the penalty with respect to the size o f financial resources and good faith o f the company or person charged, the gravity o f the violation, the history o f previous violations, and such other matters as justice (5) The Board shall promulgate regulations estab lishing procedures necessary to implement this subsection. (6) All penalties collected under authority o f this subsection shall be covered into the Treasury o f the United States. [U. S. C ., title 12, sec. 1847.] Judicial R eview Judicial review Sec. 9. Any party aggrieved by an order of the Board under this Act may obtain a review o f such order in the United States Court o f Appeals within any circuit wherein such party has its principal place o f business, or in the Court o f Appeals in the District o f Columbia, by filing in the court, within thirty days after the entry o f the Board’s order, a petition praying that the order o f the Board be set aside. A copy o f such petition shall be forthwith transmitted to the Board by the clerk of the court, and thereupon the Board shall file in the court the record made before the Board, as provided in section 2112 o f title 28, United States Code. Upon the fifing o f such petition the court shall have jurisdiction to affirm, set aside, or modify the order o f the Board and to require the Board to take such action with regard to the matter under review as the court deems proper. The findings o f the Board as to the facts, if supported by substantial evidence, shall be conclusive. [U. S. C ., title 12, sec. 1848. As amended by Acts o f Aug. 28, 1958 (72 Stat. 951) and July 1, 1966 (80 Stat. 240).] may require. (3) The company or person assessed shall be afforded an opportunity for agency hearing, upon request made within ten days after issuance o f the notice o f assessment. In such hearing all issues shall be determined on the record pursuant to section 554 o f title 5, United States Code. The agency determina tion shall be made by final order which may be re viewed only as provided in section 9. If no hearing is requested as herein provided, the assessment shall constitute a final and unappealable order. (4) If any company or person fails to pay an assessment after it has become a final and unappeal able order, or after the court o f appeals has entered final judgment in favor o f the Board, the Board shall refer the matter to the Attorney General, who shall A cquisitions, M ergers, and C onsolidations Emergency Action Sec. 11. (b) The Board shall immediately notify the Attorney General o f any approval by it pursuant to section 3 o f a proposed acquisition, merger, or consolidation transaction. If the Board has found that it must act immediately in order to prevent the probable failure o f a bank or bank holding company involved in any such transaction, the transaction may be consummated immediately upon approval by the Board. If the Board has advised the Comp- 24 S T A T U T O R Y A P P E N D IX R E G U L A T IO N Y “ PART VIII— DISTRIBUTION A N D SALES troller o f the Currency or the State supervisory PURSU AN T TO BAN K H OLDING authority, as the case may be, o f the existence o f an C O M P A N Y ACT OF 1956 emergency requiring expeditious action and has required the submission o f views and recommenda tions within ten days, the transaction may not be “ Sec. 1101. Distributions pursuant to Bank consummated before the fifth calendar day after Holding Company Act of 1956. the date o f approval by the Board. In all other cases, “ Sec. 1102. Special rules. the transaction may not be consummated before the “ Sec. 1103. Definitions. thirtieth calendar day after the date o f approval by “ Sec. 6158. Instalment payment o f tax. the Board. Any action brought under the antitrust laws arising out o f an acquisition, merger, or con solidation transaction approved under section 3 “ SEC. 1101. DISTRIBUTIONS PURSUANT TO shall be commenced prior to the earliest time under BANK HOLDING COM PAN Y ACT. this subsection at which the transaction approval under section 3 might be consummated. The com “ (a) D istribution of C ertain N on -B anking mencement o f such an action shall stay the effective Property.— ness o f the Board's approval unless the court shall “ (1) D istribution of prohibited property.— otherwise specifically order. In any such action, the If— court shall review de novo the issues presented. “ (A) a qualified bank holding corporation In any judicial proceeding attacking any acquisition, distributes prohibited property (other than stock merger, or consolidation transaction approved received in an exchange to which subsection pursuant to section 3 on the ground that such (c)(2) applies)— transaction alone and o f itself constituted a viola “ (i) to a shareholder (with respect to its tion o f any antitrust laws other than section 2 of stock held by such shareholder), without the the Act o f July 2, 1890 (section 2 o f the Sherman surrender by such shareholder o f stock in Antitrust Act, 15 U.S.C. 2), the standards applied such corporation, or by the court shall be identical with those that the “ (ii) to a shareholder, in exchange for its Board is directed to apply under section 3 o f this preferred stock, or Act. Upon the consummation o f an acquisition, “ (iii) to a security holder, in exchange for merger, or consolidation transaction approved its securities, and under section 3 in compliance with this Act and “ (B) the Board has, before the distribution, after the termination o f any antitrust litigation com certified that the distribution o f such prohibited menced within the period prescribed in this section, property is necessary or appropriate to effec or upon the termination o f such periodif no such tuate section 4 o f the Bank Holding Company litigation is commenced therein, the transaction Act. may not thereafter be attacked in any judicial pro then no gain to the shareholder or security ceeding on the ground that it alone and o f itself holder from the receipt o f such property shall be constituted a violation o f any antitrust laws other recognized. than section 2 o f the Act o f July 2, 1890 (section 2 “ (2) D istributions of stock and securities o f the Sherman Antitrust Act, 15 U.S.C. 2), but RECEIVED IN AN EXCHANGE TO WHICH SUBSECTION nothing in this Act shall exempt any bank holding (C)(2) APPLIES.— If— company involved in such a transaction from com “ (A) a qualified bank holding corporation plying with the antitrust laws after the consumma tion o f such transaction. distributes— “ (i) common stock received in an exchange to which subsection (c)(2) applies to a share A mendments to holder (with respect to its stock held by such Internal R evenue C ode of 1954 shareholder), without the surrender by such shareholder o f stock in such corporation, or Tax provisions “ (ii) common stock received in an ex change to which subsection (c)(2) applies to Sec. 10. (a) Subchapter O o f chapter 1 o f the a shareholder, in exchange for its common Internal Revenue Code o f 1954 is amended by stock, or adding at the end thereof the following new part: 25 R E G U L A T IO N Y S T A T U T O R Y A P P E N D IX tribution meets the requirements o f this subparagraph if such distribution is made by a qualified bank holding corporation which does not have more than 10 shareholders (within the meaning o f section 1371 (a)(1)) and does not have as a shareholder a person (other than an estate) which is not an individual, and if the Board (after consultation with the Secretary or his delegate) certifies that— “ (i) a distribution which meets the re quirements o f subparagraph (B) or (C) is not appropriate to effectuate section 4 or the policies o f the Bank Holding Company Act, and “ (ii) the distribution being made is neces sary or appropriate to effectuate section 4 of the policies o f such Act. “ (4) Exception.— This subsection shall not apply to any distribution by a corporation if such corporation, a corporation having control o f such corporation, or a subsidiary o f such corporation has made any distribution pursuant to subsection (b) or has made an election under section 6158 with respect to bank property (as defined in section 6158(f)(3)). “ (5) D istributions involving gift or com pensation.— In the case o f a distribution to which paragraph (1) or (2) applies but which— “ (A) results in a gift, see section 2501 and following, or “ (B) has the effect o f the payment o f com pensation, see section 61. “ (b) C orporation C easing T o Be a Bank H old ing C ompany .— “ (1) D istributions of property which cause “ (iii) preferred stock or common stock received in an exchange to which subsection (c)(2) applies to a shareholder, in exchange for its preferred stock, or “ (iv) securities or preferred or common stock received in an exchange to which sub section (c)(2) applies to a security holder in exchange for its securities, and “ (B) any preferred stock received has sub stantially the same forms as the preferred stock exchanged, and any securities received have substantially the same terms as the securities exchanged, then, except as provided in subsection (f), no gain to the shareholder or security holder from the receipt o f such stock or such securities or such stock and securities shall be recognized. “ (3) Pro rata and other requirements.— “ (A) In general.— Paragraphs (1) and (2) o f this subsection, or paragraphs (1) and (2) of subsection (b), as the case may be, shall apply to any distribution to the shareholders o f a qualified bank holding corporation only if each distribution— “ (i) which is made by such corporation to its shareholders after July 7, 1970, and on or before the date on which the Board makes its final certification under subsection (e), and “ (ii) to which such paragraph (1) or (2) applies (determined without regard to this paragraph), meets the requirements o f subparagraph (B), (C), or (D ). “ (B) Pro rata requirements.— A distribu tion meets the requirements o f this subpara graph if the distribution is pro rata with respect to all shareholders o f the distributing qualified bank holding corporation or with respect to all shareholders o f common stock o f such corporation. “ (C) R edemptions when uniform offer is made.— A distribution meets the requirements o f this subparagraph if the distribution is in exchange for stock o f the distributing qualified bank holding corporation and such distribution is pursuant to a good faith offer made on a uni form basis to all shareholders o f the distribut ing qualified bank holding corporation or to all shareholders o f common stock o f such cor poration. “ (D) N on -pro rata distributions A CORPORATION TO BE A BANK HOLDING COMPANY. — If— “ (A) a qualified bank holding corporation distributes property (other than stock received in an exchange to which subsection (c)(3) applies)— “ (i) to a shareholder (with respect to its stock held by such shareholder), without the surrender by such shareholder o f stock in such corporation, or “ (ii) to a shareholder, in exchange for its preferred stock, or “ (iii) to a security holder, in exchange for its securities, and “ (B) the Board has, before the distribution, certified that— “ (i) such property is all or part o f the property by reason o f which such corporation from CERTAIN CLOSELY-HELD CORPORATIONS.— A dis 26 R E G U L A T IO N Y S T A T U T O R Y A P P E N D IX controls (within the meaning o f section 2(a) o f the Bank Holding Company Act) a bank or bank holding company, or such property is part o f the property by reason o f which such corporation did control a bank or a bank holding company before any property o f the same kind was distributed under this subsection or exchanged under subsection (c)(3), and “ (ii) the distribution is necessary or ap propriate to effectuate the policies o f such Act, then no gain to the shareholder or security holder from the receipt o f such property shall be recog nized. “ (2) D istributions of stock and securities (a) or has made an election under section 6158 with respect to prohibited property. “ (5) D istributions involving gift or com the case o f a distribution to which paragraph (1) or (2) applies but which— “ (A) results in a gift, see section 2501 and following, or “ (B) has the effect o f the payment o f com pensation, see section 61. pensation.— In (c) Property acquired after July 7, 1970.— “ (1) In G eneral.— Except as provided in para graphs (2) and (3), subsection (a) or (b) shall not apply to— “ (A) any property acquired by the distribut ing corporation after July 7,1970, unless (i) gain to such corporation with respect to the receipt o f such property was not recognized by reason o f subsection (a) or (b), or (ii) such property was received by it in exchange for all o f its stock in an exchange to which paragraph (2) or (3) applies, or (iii) such property was acquired by the distributing corporation in a transaction in which gain was not recognized under section 305(a) or section 332, or under section 354 or 356 (but only with respect to property permitted by section 354 or 356 to be received without the recognition o f gain or loss) with respect to a reorganization described in section 368(a)(1) (A ), (B), (E), or (F), or “ (B) any property which was acquired by the distributing corporation in a distribution with respect to stock acquired by such cor poration after July 7, 1970, unless such stock was acquired by such corporation (i) in a dis tribution (with respect to stock held by it on July 7, 1970, or with respect to stock in respect o f which all previous applications o f this clause are satisfied) with respect to which gain to it was not recognized by reason o f subsection (a) or (b), or (ii) in exchange for all o f its stock in an exchange to which paragraph (2) or (3) applies, or (iii) in a transaction in which gain was not recognized under section 305(a) or section 332, or under section 354 or 356 (but only with re spect to property permitted by section 354 or 356 to be received without the recognition o f gain or loss) with respect to a reorganization de scribed in section 368(a)(1)(A), (B), (E), or (F), or “ (C) any property acquired by the distribut ing corporation in a transaction in which gain was not recognized under section 332, unless such property was acquired from a corporation RECEIVED IN AN EXCHANGE TO WHICH SUBSECTION (c)(3) APPLIES.— If— “ (A) a qualified bank holding corporation distributes— “ (i) common stock received in an exchange to which subsection (c)(3) applies to a share holder (with respect to its stock held by such shareholder), without the surrender by such shareholder o f stock in such corporation, or “ (ii) common stock received in an exchange to which subsection (c)(3) applies to a share holder in exchange for its common stock, or “ (iii) preferred stock or common stock received in an exchange to which subsection (c)(3) applies to a shareholder, in exchange for its preferred stock, or “ (iv) securities or preferred or common stock received in an exchange to which sub section (c)(3) applies to a security holder, in exchange for its securities, and “ (B) any preferred stock received has sub stantially the same terms as the preferred stock exchanged, and any securities received have sub stantially the same terms as the securities exchanged, then, except as provided in subsection (f), no gain to the shareholder or security holder from the receipt o f such stock or such securities or such stock and securities shall be recognized. ro rata and other requirements — For pro rata and other requirements, see subsection “(3) P . (a)(3). “(4) Exception.— This subsection shall not apply to any distribution by a corporation if such corporation, a corporation having control o f such corporation, or a subsidiary o f such corporation has made any distribution pursuant to subsection 27 S T A T U T O R Y A P P E N D IX R E G U L A T IO N Y which, if it had been a qualified bank holding corporation, could have distributed such prop erty under subsection (a)(1) or (b)(1), or (D ) any property acquired by the distribut ing corporation in a transaction in which gain was not recognized under section 354 or 356 with respect to a reorganization described in section 368(a)(1) (A) or (B), unless such prop erty was acquired by the distributing corpora tion in exchange for property which the dis tributing corporation could have distributed under subsection (a)(1) or (b)(1). (2) Exchanges involving prohibited prop erty .— If— “ (A) any qualified bank holding corporation exchanges (i) property, which, under subsection (a) (1), such corporation could distribute directly to its shareholders or security holders without the recognition o f gain to such shareholders or security holders, and other property (except property described in subsection (b)(l)(B)(i)), for (ii) all o f the stock o f a second corporation created and availed o f solely for the purpose o f receiving such property, “ (C) before such distribution, the Board has certified (with respect to the property ex changed which consists o f property which, un der subsection (b)(1), such corporation could distribute directly to its shareholders or security holders without the recognition o f gain) that— “ (i) such property is all or part o f the property by reason o f which such corpora tion controls (within the meaning o f section 2(a) o f the Bank Holding Company Act) a bank or bank holding company, or such property is part o f the property by reason o f which such corporation did control a bank holding company before any property o f the same kind was distributed under subsection (b)(1) or exchanged under this paragraph, and “ (ii) the exchange and distribution are necessary or appropriate to effectuate the policies o f such Act, then paragraph (1) shall not apply with respect to such distribution. (d) D istributions T o A void Federal Income T a x .— “ (B) immediately after the exchange, the qualified bank holding corporation distributes all o f such stock in a manner prescribed in subsection (a)(2)(A), and “ (1) Prohibited property.— Subsection (a) shall not apply to a distribution if, in connec tion with such distribution, the distributing cor poration retains, or transfers after July 7, 1970, to any corporation, property (other than pro hibited property) as part o f a plan one o f the principle purposes o f which is the distribution o f the earnings and profits o f any corporation. “ (C) before such distribution, the Board has certified with respect to the property exchanged which consists o f property which, under sub section (a)(1), such corporation could distribute directly to its shareholders or security holders without the recognition o f gain) that the ex change and distribution are necessary or appro priate to effectuate section 4 o f the Bank Hold ing Company Act, then paragraph (1) shall not apply with respect to such distribution. “ (3) Exchanges involving interests in bank . — If— “ (A) any qualified bank holding corporation exchanges (i) property which, under subsection (b) (1), such corporation could distribute directly to its shareholders or security holders without the recognition o f gain to such shareholders or security holders, and other property (except prohibited property), for (ii) all o f the stock o f a second corporation created and availed o f solely for the purpose o f receiving such property. “ (B) immediately after the exchange, the qualified bank holding corporation distributes all o f such stock in a manner prescribed in subsection (b)(2)(A), and 28 “ (2) Banking property.— Subsection (b) shall not apply to a distribution if, in connection with such distribution, the distributing corporation retains, or transfers after July 7, 1970, to any corporation, property (other than property de scribed in subsection (b)(l)(B)(i)) as part o f a plan one o f the principle purposes o f which is the distribution o f the earnings and profits o f any corporation. (e) F inal C ertification.— “ (1) For subsection (a).— Subsection (a) shall not apply with respect to any distribution by a corporation unless the Board certifies, before the close o f the calendar year following the calendar year in which the last distribution oc curred, that the corporation has (before the ex piration o f the period prohibited property is permitted under the Bank Holding Company Act R E G U L A T IO N Y S T A T U T O R Y A P P E N D IX to be held by a bank holding company) disposed o f all o f the property the disposition o f which is necessary or appropriate to effectuate section 4 o f the Bank Holding Company Act. subsection (a), (b), or (c) o f section 1101, until 5 years after the distributing corporation notifies the Secretary or his delegate (in such manner and with such accompanying information as the Secretary or his delegate may by regulations prescribe)— “ (2) For subsection (b).— Subsection (b) shall not apply with respect to any distribution by a corporation unless the Board certifies, before the close o f the calendar year following the calendar year in which the last distribution oc curred, that the corporation has (before the ex piration o f the period prohibited property is permitted under the Bank Holding Company Act to be held by a bank holding company) ceased to be a bank holding company. “ (1) that the final certification required by sub section (e) o f section 1101 has been made, or “ (2) that such final certification will not be made; and such assessment may be made notwithstanding any provision o f law or rule o f law which would otherwise prevent such assessment. “ (c) A llocation of Earnings and Profits.— (f) C ertain Exchanges of Securities.— In the case o f an exchange described in subsection (a)(2)(A)(iv) or subsection (b)(2)(A)(iv), subsection (a) or subsection (b) (as the case may be) shall apply only to the extent that the principle amount o f the securities received does not exceed the principle amount o f the securities exchanged. SEC. 1102. SPECIAL RULES “ (2) Exchanges described in section 1101 (c) (2) or (3).'— In the case o f any exchange de scribed in section 1101(c) (2) or (3), proper alloca tion with respect to the earnings and profits o f the corporation transferring the property and the corporation receiving such property shall be made under regulations prescribed by the Secretary or his delegate. “ (a) Basis of Property A cquired in D istri butions.— If, by reason o f section 1101, gain is not recognized with respect to the receipt o f any prop erty, then, under regulations prescribed by the Secretary or his delegate— “ (1) if the property is received by a share holder with respect to stock without the surrender by such shareholder o f stock, the basis o f the property received and o f the stock with respect to which it is distributed shall, in the distributee’s hands, be determined by allocating between such property and such stock the adjusted basis of such stock, or “ (3) D efinition of controlled corporation. — For purposes o f paragraph (1), the term ‘con trolled corporation’ means a corporation with respect to which at least 80 per cent o f the total combined voting power o f all classes o f stock en titled to vote and at least 80 per cent o f the total number o f shares o f all other classes o f stock is owned by the distributing qualified bank holding corporation. “ (2) if the property is received by a share holder in exchange for stock or by a security holder in exchange for securities, the basis o f the property received shall, in the distributee’s hands, be the same as the adjusted basis o f the stock or securities exchanged, increased by the amount o f gain to the taxpayer recognized on the property received. “ (d) Itemization of Property.— In any certifica tion under this part, the Board shall make such specification and itemization o f property as may be necessary to carry out the provisions o f this part. “ (b) Periods of L imitation.— The periods o f limitation provided in section 6501 (relating to limitations on assessment and collection) shall not expire, with respect to any deficiency (including interest and additions to the tax) resulting solely from the receipt o f property by shareholders in a distribution which is certified by the Board under “ (1) D istribution of stock in a controlled the case o f a distribution by a qualified bank holding corporation under section 1101 (a)(1) or (b)(1) o f stock in a controlled cor poration, proper allocation with respect to the earning and profits o f the distributing corporation and the controlled corporation shall be made under regulations prescribed by the Secretary or his delegate. corporation .— In SEC. 1103. DEFINITIONS. (a) Bank H olding C ompany ; Bank Holding C ompany A ct .— For purposes o f this part— (1) B an k holding c o m p a n y .— The term “ bank holding company” means— (A) a bank holding company within the 29 REGULATION Y STATUTORY APPENDIX meaning o f section 2(a) o f the Bank Holding Company Act, or (B) a bank holding company subsidiary within the meaning o f section 2(d) o f such Act. (2) B a n k h o l d i n g c o m p a n y a c t .— The term “ Bank Holding Company Act” means the Bank Holding Company Act o f 1956, as amended through December 31, 1970 (12 U.S.C. 1841 et seq.). (b ) Q u a l if ie d Ban k H o l d in g C o r p o r a t io n .— (iii) in exchange for all o f its stock in an exchange described in section 1101 (c)(2) or (3). (C) A corporation shall be treated as a qualified bank holding corporation only if the Board certifies that it satisfies the foregoing requirements o f this subsection. (A) on or before July 7, 1970, (B) in a distribution in which gain to such corporation with respect to the receipt o f such property was not recognized by reason o f sub section (a) or (b) o f section 1101, or (3) C e r t a i n s u c c e s s o r c o r p o r a t i o n s . — For purposes o f this subsection, a successor corpora tion in a reorganization described in section 368(a)(1)(F) shall succeed to the status o f its predecessor corporation as a qualified bank hold ing corporation. (C) in exchange for all o f its stock in an ex change described in section 1101 (c)(2) or (c)(3). i m i t a t i o n s .— (c) P r o h i b i t e d P r o p e r t y .— For purposes o f this part, the term “ prohibited property” means, in the case o f any bank holding company, property (other than nonexempt property) the disposition o f which would be necessary or appropriate to effectuate section 4 o f the Bank Holding Company Act if such company continued to be a bank holding company beyond the period (including any extensions thereof) specified in subsection (a) o f such section. The term “ prohibited property” also includes shares o f any company not in excess o f 5 per cent o f the outstand ing voting shares o f such company if the prohibi tions o f section 4 o f such Act apply to the shares o f such company in excess o f such 5 per cent. (A) A bank holding company shall not be a qualified bank holding corporation, unless it would have been a bank holding company on July 7, 1970, if the Bank Holding Company Act Amendment o f 1970 had been in effect on such date, or unless it is a bank holding com pany determined solely by reference to— (i) property acquired by it on or before July 7, 1970, (ii) property acquired by it in a distribution in which gain to such corporation with re spect to the receipt o f such property was not recognized by reason o f subsection (a) or (b) o f section 1101, or (d) N o n e x e m p t P r o p e r t y .— For purposes o f this part, the term “ nonexempt property” means— (iii) property acquired by it in exchange for all o f its stock in an exchange described in section 1101(c)(2) or (3). (1) obligations (including notes, drafts, bills o f exchange, and bankers’ acceptances) having a maturity at the time o f issuance o f not exceed ing 24 months, exclusive o f days o f grace, For purposes o f this subparagraph, property held by a corporation having control o f the corporation or by a subsidiary o f the corpora tion shall be treated as held by the corporation. (2) securities issued by or guaranteed as to principal or interest by a government or sub division thereof or by any instrumentality o f a government or subdivision, or (B) A bank holding company shall not be a qualified bank holding corporation by reason o f property described in sub-paragraph (B) o f paragraph (1) or clause (ii) o f subparagraph (A) o f this paragraph, unless such property was (i) on or before July 7, 1970, (ii) in a distribution (with respect to stock held by it on July 7, 1970, or with respect to stock in respect o f which all previous appli cations o f this clause are satisfied) with re spect to which gain to it was not recognized by reason o f subsection (a) or (b) o f section 1101, or (1) I n G e n e r a l .— Except as provided in para graph (2), for purposes o f this part the term “ quali fied bank holding corporation” means any cor poration (as defined in section 7701(a)(3)) which is a bank holding company and which holds prohibited property acquired by it— (2 ) L acquired in a distribution with respect to stock, which stock was acquired by such bank holding company— (3) money, and the right to receive money not evidenced by a security or obligation (other than 30 REGULATION Y STATUTORY APPENDIX a security or obligation described in paragraph (1) or (2)). case may be, and shall be made at such time and in such manner as the Secretary or his delegate may by regulations prescribe. Any such election, once made, shall be irrevocable. (e) B o a r d .— For purposes o f this part, the term “ Board” means the Board o f Governors o f the Federal Reserve System. (f) C o n t r o l ; part— S u b s i d i a r y .— For (b) A m e n d m e n t o f S e c t i o n 311(d).— Paragraph (2) o f section 311(d) o f such Code (relating to ex ceptions and limitations to the recognition o f gain where appreciated property is used to redeem stock) is amended by striking out “ and” at the end o f subparagraph (F), by striking out the period at the end o f subparagraph (G) and inserting in lieu thereof “ ; and” , and by adding at the end thereof the follow ing new subparagraph: purposes o f this (1) C o n t r o l .— Except as provided in section 1102(c)(3), a corporation shall be treated as having control o f another corporation if such corporation has control (within the meaning o f section 2(a)(2) o f the Bank Holding Company Act) o f such other corporation. “ (H) a distribution o f stock to a distributee which is not an organization exempt from tax under section 501(a), if with respect to such distributee, subsection (a)(1) or (b)(1) o f sec tion 1101 (relating to distributions pursuant to Bank Holding Company Act) applies to such distribution.” (2) S u b s i d i a r y .— The term “ subsidiary” has the meaning given to such term by section 2(d) o f the Bank Holding Company Act. (g) E l e c t io n v is io n for A T F orego G randfather Pro Property R e p r e s e n t in g P re- o ll 30, 1968, A c t i v i t i e s .— Any bank holding company may elect, for purposes o f this part and section 6158, to have the determination o f whether property is property described in subsection (c) or is property eligible to be distributed without recog nition o f gain under section 1101(b)(1) made under the Bank Holding Company Act as if such Act did not contain the proviso o f section 4(a)(2) thereof. Any election under this subsection shall apply to all property described in such proviso and shall be made at such time and in such manner as the Secre tary or his delegate may by regulations prescribe. Any such election, once made, shall be irrevocable. An election under this subsection or subsection (h) shall not apply unless the final certification referred to in section 1101(e) or section 6158(c)(2), as the case may be, includes a certification by the Board that the bank holding company has disposed o f either all banking property or all nonbanking property. Ju n e (h ) E l e c t io n T b a n k in g o Property D iv e s t in C A ase ll of Ba n k in g C e r t a in or C N on (c) C l e r i c a l A m e n d m e n t .—-The table o f parts for subchapter O o f chapter 1 o f such Code is amended by striking out “ o f 1956” . (d) a t e .— (1) F o r S u b s e c t i o n (a).— The amendments made by subsections (a) and (c) shall take effect on October 1, 1977, with respect to distributions after July 7, 1970, in taxable years ending after July 7, 1970, but only in the case o f qualified bank holding corporations (within the meaning o f sec tion 1103(b) o f the Internal Revenue Code o f 1954, as amended by subsection (a) o f this section). (2) t io n s S p e c ia l rule for c e r t if y in g d is t r ib u W H ICH HAVE ALREADY TAKEN PLACE.— For purposes o f sections 1101(a)(1)(B), 1101(a)(3)(D), 1101(b)(1)(B), 1101(c)(2)(C), 1101(c)(3)(C), and 1101(e) o f the Internal Revenue Code o f 1954 (as amended by subsection (a) o f this section), in the case o f any distribution which takes place on or before the 90th day after the date o f the enactment o f this Act, a certification by the Federal Reserve Board described in any such section shall be treated as made before the distribution (or, in the case o f section 1101(e), before the close o f the calendar year following the calendar year in which the last distribution occurred) if application for such certification is made before the close o f the 90th day after the date o f the enactment o f this Act. losely H eld Ban k H o l d in g C o m p a n i e s . — Any bank holding company may elect, for purposes o f this part and section 6158, to have the determination o f whether property is property described in subsec tion (c) or is property eligible to be distributed without recognition o f gain under section 1101(b)(1) made under the Bank Holding Company Act as if such Act did not contain clause (ii) o f section 4(c) o f such Act. Any election under this subsection shall apply to all property described in subsection (c), or to all property eligible to be distributed without recognition o f gain under section 1101(b)(1), as the E f f e c t iv e D (3) P e r i o d o f l i m i t a t i o n s .— If refund or credit o f any overpayment o f income tax attributable to the amendment made by subsection (a) is pre 31 REGULATION Y STATUTORY APPENDIX made any distribution pursuant to section 1101(b). This section shall not apply to bank property if the taxpayer (or a corporation having control of the taxpayer or a subsidiary o f the taxpayer) has made an election under subsection (a) with respect to prohibited property or has made any distribu tion pursuant to section 1101(a). vented at any time before October 1, 1978, by the operation o f any law or rule o f law, refund or credit o f such overpayment may, nevertheless, be made or allowed if claim therefor is filed before October 1, 1978. (4) F o r s u b s e c t i o n (b).— The amendment made by subsection (b) shall take effect on October 1, 1977, with respect to distributions after December 31, 1975, in taxable years ending after December 31, 1975. “ (2 ) T (a) I n s t a l m e n t P a y m e n t .— Subchapter A o f chapter 62 o f the Internal Revenue Code o f 1954 (relating to place and due date for payment o f tax) is amended by adding at the end thereof the follow ing new section: A C T A M E N D M E N T S O F 1970. “ (a) E l e c t i o n o f E x t e n s i o n .— If, after July 7, 1970, a qualified bank holding corporation sells bank property or prohibited property, the divesti ture o f either o f which the Board certifies, before such sale, is necessary or appropriate to effectuate section 4 or the policies o f the Bank Holding Com pany Act, the tax under chapter 1 attributable to such sale shall, at the election o f the taxpayer, be payable in equal annual instalments beginning with the due date (determined without extension) for the taxpayer’ s return o f tax under chapter 1 for the taxable year in which the sale occurred and ending with the corresponding date in 1985. If the number o f instalments determined under the pre ceding sentence is less than 10, such number shall be increased to 10 equal annual instalments which begin as provided in the preceding sentence and which end on the corresponding date 10 years later. An election under this subsection shall be made at such time and in such manner as the Secretary or his delegate may by regulations prescribe. then the extension o f time for payment o f tax pro vided in this section shall cease to apply, and any portion o f the tax payable in instalments shall be paid on notice and demand from the Secretary or his delegate. “ (d) P r o r a t i o n o f D e f i c i e n c y t o I n s t a l m e n t s . — If an election is made under subsection (a) and a deficiency attributable to the sale has been assessed, the deficiency shall be prorated to such instalments. The part o f the deficiency so prorated to any instal ment the date for payment o f which has not arrived shall be collected at the same time as, and as part of, such instalment. The part o f the deficiency so pro rated to any instalment the date for payment o f which has arrived shall be paid on notice and de mand from the Secretary or his delegate. This sub section shall not apply if the deficiency is due to negligence, to intentional disregard o f rules and regulations, or to fraud with intent to evade tax. “ (e) B o n d M a y B e R e q u i r e d .— If an election is made under this section, section 6165 shall apply as though the Secretary were extending the time for payment o f the tax. i m i t a t i o n s .— not a v a il a b l e to taxpayer FOR BOTH BANK PROPERTY AND PROHIBITED PROP ERTY.—This section shall not apply to any sale o f “ (f) prohibited property if the taxpayer (or a corpora tion having control o f the taxpayer or a subsidiary o f the taxpayer) has made an election under sub section (a) with respect to bank property or has c e r t a in “ (2) the Board fails to make a certification similar to the applicable certification provided in section 1101(e) within the time prescribed therein (for this purpose treating the last such sale as constituting the last distribution), S U A N T T O B A N K H O L D IN G C O M P A N Y reatm ent for “ (1) any instalment under this section is not paid on or before the date fixed by this section for its payment, or A T T R IB U T A B L E T O D IV E S T IT U R E S P U R “ (1 ) T a v a il a b l e sales. “ (c) A c c e l e r a t i o n o f P a y m e n t s .— If an elec tion is made under subsection (a) and before the tax attributable to such sale is paid in full— “ S E C . 6 15 8 . I N S T A L M E N T P A Y M E N T O F T A X L not — N o election may be made under subsection (a) with respect to a sale if the income from such sale is being returned at the time and in the manner provided in section 453 (relating to instalment method). S E C . 3. IN S T A L M E N T P A Y M E N T O F T A X “ (b) reatm ent in s t a l m e n t D e f in it io n s . “ (1 ) T erms — For purposes o f this section— have m e a n in g s g iv e n to them by 1103.—The terms ‘qualified bank holding corporation’ , ‘ Bank Holding Company Act’ , s e c t io n 32 REGULATION Y STATUTORY APPENDIX ‘ Board’ ; ‘control’ , and ‘subsidiary’ have the respective meanings given to such terms by sec tion 1103. “ (2) Prohibited property.— The term ‘ pro hibited property’ means property held by a quali fied bank holding corporation which could be distributed without recognition o f gain under section 1101(a)(1). “ (3) Bank property.— The term ‘ bank prop erty’ means property held by a qualified bank holding corporation which could be distributed without recognition o f gain under section 1101(b)(1). (B) by striking out “ or 6156(b)” and insert ing in lieu thereof “ , 6156(b), or 6158(a)” ; and (C) by inserting at the end thereof the fol lowing new sentence: “ For purposes o f subparagraph (A ), section 6158(a) shall be treated as providing that the date prescribed for payment o f each instalment shall not be later than the date prescribed for payment o f the 1985 instalment.” (d) A pplicability to C ertain Successor C or after July 7, 1970, and before August 1, 1974— porations .— If, (1) a corporation acquires substantially all o f the properties o f a qualified bank holding cor poration (as defined in section 1103(b) o f the Internal Revenue Code o f 1954) in a transac tion described in sections 368(a)(1)(A) and 368(a)(2)(D), and “ (g) C ross R eferences.— “ ( I ) Security.— For authority o f the Secretary or his delegate to require security in the case o f an e x tension under this section, see section 6 16 5 . “ (2 ) Period o f limitation.— For extension o f the (2) the acquiring corporation (or a corpora tion in control o f the acquiring corporation) acquires beneficial interests in shares described in section 2(g)(2) o f the Bank Holding Company Act (as defined in section 1103(a)(2) o f the In ternal Revenue Code o f 1954) in a transaction to which section 351 applies, period o f limitation in the case o f an extension under this section, see section 6 5 0 3 (i).” (b) Extension of T ime for C ollection of T a x .— Section 6503 o f such Code (relating to suspension o f running o f period o f limitation) is amended by redesigning subsection (i) as subsection (j) and by inserting after subsection (h) the following new subsection: then, the acquiring corporation (or a corporation which is in control (within the meaning o f section 2(a)(2) o f such Act) o f the acquiring corporation or a subsidiary (within the meaning o f section 2(d) o f such Act) o f the corporation so in control) shall be treated as a qualified bank holding corporation for purposes o f section 1103(b) and 6158 o f the Internal Revenue Code o f 1954 and the shares described in such section 2(g)(2) shall be considered property which is acquired by such corporation, for purposes o f section 1101(c)(l)(A)(iii) o f the Internal Revenue Code o f 1954, after July 7, 1970. “ (i) Extension of T ime for C ollecting T ax A ttributable to D ivestitutes Pursuant to Bank H olding C ompany A ct A mendments of 1970.— The running o f the period o f limitations for collec tion o f the tax attributable to a sale with respect to which the taxpayer makes an election under section 6158(a) shall be suspended for the period during which there are any unpaid instalments o f such tax.” (c) T echnical A mendments.— (1) The table o f sections for subchapter A of chapter 62 o f such Code is amended by adding at the end thereof the following new item: (e) Effective D ates.— (1) In general.— The amendments made by this section shall take effect on October 1, 1977, with respect to sales after July 7, 1970, in taxable years ending after July 7, 1970, but only in the case o f qualified bank holding corporations (within the meaning o f section 1103(b) o f the Internal Revenue Code o f 1954, as amended by section 2(a) o f this Act). “ Sec. 6158. Instalment payment o f tax at tributable to divestitures pur suant to Bank Holding C om pany Act Amendments of 1970.” (2) Subsection (a) o f section 6151 o f such Code (relating to time and place for paying tax shown on returns) is amended by striking out “ section,” and inserting in lieu thereof “ subchapter,” . (2) Special rule for certifying sales which HAVE ALREADY TAKEN PLACE.— For purposes o f (3) Paragraph (2) o f section 6601(b) o f such Code (relating to interest) is amended— (A) by striking out “ or 6156(a)” and in serting in lieu thereof “ , 6156(a), or 6158(a)” , 33 section 6158(a) o f the Internal Revenue Code o f 1954 (as added by subsection (a) o f this section) in the case o f any sale which takes place on or before the 90th day after the date o f the enact - REGULATION Y STATUTORY APPENDIX stituted on account o f any prohibited antitrust or monopolistic act, action, or conduct, except as specifically provided in this section. ment o f this Act, a certification by the Federal Reserve Board described in section 6158(a) shall be treated as made before the sale if application for such certification is made before the close o f the 90th day after the date o f the enactment o f this Act. (3 ) R efund of t a x Applicability of and procedure with respect to anti trust laws .— (b) The Board shall immediately notify the Attorney General o f any approval by it pursuant to section 3 o f a proposed acquisition, merger, or consolidation transaction. If the Board has found that it must act immediately in order to prevent the probable failure o f a bank or bank holding com pany involved in any cash transaction, the trans action may be consummated immediately upon approval by the Board. If the Board has advised the Comptroller o f the Currency or the State supervisory authority, as the case may be, o f the existence o f an emergency requiring expeditious action and has required the submission o f views and recommendations within ten days, the transaction may not be consummated before the fifth calendar day after the date o f approval by the Board. In all other cases, the transaction may not be consum mated before the thirtieth calendar day after the date o f approval by the Board. Any action brought under the antitrust laws arising out o f an acquisi tion, merger, or consolidation transaction approved under section 3 shall be commenced prior to the earliest time under this subsection at which the transaction approval under section 3 might be consummated. The commencement o f such an action shall stay the effectiveness o f the Board’s approval unless the court shall otherwise specifically order. In any such action, the court shall review de novo the issues presented. In any judicial proceeding attacking any acquisition, merger, or consolidation transaction approved pursuant to section 3 on the ground that such transaction alone and o f itself constituted a violation o f any antitrust laws other than section 2 o f the Act o f July 2, 1890 (section 2 o f the Sherman Antitrust Act. 15 U.S.C. 2), the standards applied by the court shall be identical with those that the Board is directed to apply under section 3 o f this Act. Upon the consummation o f an acquisition, merger, or consolidation transaction approved under section 3 in compliance with this Act and after the termination o f any antitrust litigation commenced within the period prescribed in this section, or upon the termination o f such period if no such litigation is commenced therein, the transaction may not thereafter be attached in any judicial proceeding on the ground that it alone (A) In general.— If any tax attributable to a sale which occurred before October 1, 1977, is payable in annual instalments by reason o f an election under section 6158(a) o f the Internal Revenue Code o f 1954, any portion o f such tax for which the due date o f the instalment does not occur before October 1, 1977, shall, on application o f the taxpayer, be treated as an overpayment o f tax. (B) I n t e r e s t o n o v e r p a y m e n t s .— For pur poses o f section 6611(b), in the case o f any overpayment attributable to subparagraph (A ), the date o f the overpayment shall be the day which is 6 months after the latest o f the follow ing: (i) the date on which application for re fund or credit o f such overpayment is filed, (ii) the due date prescribed by law (de termined without extensions) for filing the return o f tax under chapter 1 o f the Internal Revenue Code o f 1954 for the taxable year the tax o f which is being refunded or credited, or (iii) the date o f the enactment o f this Act. ( C ) E x t e n s io n o f p e r i o d o f l i m i t a t i o n s .— If any refund or credit o f tax attributable to the application o f subparagraph (A) is prevented at any time before October 1, 1978, by the operation o f any law or rule o f law, refund or credit o f such overpayment may, nevertheless, be made or allowed if claim therefor is filed before October 1, 1978. S a v in g P r o v is io n Saving clause Sec. 11. (a) Nothing herein contained shall be interpreted or construed as approving any act, ac tion, or conduct which is or has been or may be in violation o f existing law, nor shall anything herein contained constitute a defense to any ac tion, suit, or proceeding pending or hereafter in 34 REGULATION Y STATUTORY APPENDIX and o f itself constituted a violation o f any anti trust laws other than section 2 o f the Act o f July 2, 1890 (section 2 o f the Sherman Antitrust Act, 15 U.S.C. 2), but nothing in this Act shall exempt any bank holding company involved in such a transac tion from complying with the antitrust laws after the consummation o f such transaction. Separability of Provisions Separability clause Sec. 12. If any provision o f this Act, or the application o f such provision to any person or circumstance, shall be held invalid, the remainder o f the Act, and the application o f such provision to persons or circumstances other than those to which it is held invalid, shall not be affected thereby. Judicial rights o f Board and State bank supervisors (c) In any action brought under the antitrust laws arising out o f any acquisition, merger, or consolidation transaction approved by the Board under section 3 o f this Act, the Board and any State banking supervisory agency having jurisdic tion within the State involved, may appear as a party o f its own motion and as o f right, and be represented by its counsel. B A N K H O L D IN G CO M PAN Y ACT A M E N D M E N T S O F 197 0 A ct o f December 3 1 , 1 97 0 ( 8 4 Stat. 1 76 6 ) Party in Interest Litigation not initiated before July 1 , 1966 Sec . 105. With respect to any proceeding be fore the Federal Reserve Board wherein an appli cant seeks authority to acquire a subsidiary which is a bank under section 3 o f the Bank Holding Company Act o f 1956, to engage directly or in directly in a nonbanking activity pursuant to sec tion 4 o f such Act, or to engage in an activity otherwise prohibited under section 106 o f this Act, a party who would become a competitor o f the applicant or subsidiary thereof by virtue o f the applicant’s or its subsidiary’s acquisition, entry into the business involved, or activity, shall have the right to be a party in interest in the proceeding and, in the event o f an adverse order o f the Board, shall have the right as an aggrieved party to obtain judicial review thereof as provided in section 9 o f such Act o f 1956 or as otherwise provided by law. (d) Any acquisition, merger, or consolidation o f the kind described in section 3(a) o f this Act which was consummated at any time prior or sub sequent to May 9, 1956, and as to which no litiga tion was initiated by the Attorney General prior to the date o f enactment o f this amendment, shall be conclusively presumed not to have been in viola tion o f any antitrust laws other than section 2 o f the Act o f July 2, 1890 (section 2 o f the Sherman Antitrust Act, 15 U.S.C. 2). Litigation pending on or after July 1 , 1966 (e) Any court having pending before it on or after the date o f enactment o f this amendment any litigation initiated under the antitrust laws by the Attorney General with respect to any acquisition, merger, or consolidation o f the kind described in section 3(a) o f this Act shall apply the substantive rule o f law set forth in section 3 o f this Act. [U. S. C., title 12, sec. 1850.] C onditional T ransactions Definitions M eaning o f “ antitrust laws” Sec. 106. (a) As used in this section, the terms “ bank” , “ bank holding company” , “ subsidiary” , and “ Board” have the meaning ascribed to such terms in section 2 o f the Bank Holding Company Act o f 1956. For purposes o f this section only, the term “ company” , as used in section 2 o f the Bank Holding Company Act o f 1956, means any person, estate, trust, partnership, corporation, association, or similar organization, but does not include any corporation the majority o f the shares o f which are owned by the United States or by any State. The (f) For the purposes o f this section, the term “ antitrust laws” means the Act o f July 2, 1890 (the Sherman Antitrust Act, 15 U.S.C. 1-7), the Act o f October 15, 1914 (the Clayton Act, 15 U.S.C. 12-27), and any other Acts in pari materia. [U. S. C., title 12, 1849. As amended by Acts of July 1, 1966 (80 Stat. 240) and Dec. 31, 1970 (84 Stat. 1766) Oct. 2, 1976 (90 Stat. 1503) and November 16, 1977 (91 Stat. 1390). The date of the amendment referred to in paragraphs (d) and (e) is July 1, 1966.] 35 REGULATION Y STATUTORY APPENDIX persons and does not involve more than the normal risk o f repayment or present other unfavorable features. term “ trust service” means any service customarily performed by a bank trust department. [U. S. C., title 12, sec. 1971.] (B) N o bank shall open a correspondent account at another bank while such bank has outstanding T ie-in arrangements and extension o f credit to an executive officer or (b) (1) A bank shall not in any manner extend director of, or other persons who directly or in directly or acting through or in concert with one or credit, lease or sell property o f any kind, or fur more persons owns, controls, or has the power to nish any service, or fix or vary the consideration vote more than 10 per centum o f any class o f voting for any o f the foregoing, on the condition or re securities of, the bank desiring to open the account, quirement— unless such extension o f credit was made on sub (A) that the customer shall obtain some ad stantially the same terms, including interest rates ditional credit property, or service from such and collateral as those prevailing at the time for bank other than a loan, discount, deposit, or comparable transactions with other persons and trust service; does not involve more than the normal risk o f re (B) that the customer shall obtain some ad payment or present other unfavorable features. ditional credit, property, or service from a bank (C) N o bank which maintains a correspondent holding company o f such bank, or from any account at another Bank shall make an extension other subsidiary o f such bank holding company; o f credit to an executive officer or director of, or (C) that the customer provide some addi to any person who directly or indirectly acting tional credit, property, or service to such bank, through or in concert with one or more persons other than those related to and usually provided owns, controls, or has the power to vote more in connection with a loan, discount, deposit, or than 10 per centum o f any class o f voting securities trust service; of, such other bank, unless such extension o f credit (D) that the customer provide some addi is made on substantially the same terms, including tional credit, property, or service to a bank interest rates and collateral as those prevailing at holding company o f such bank, or to any other the time for comparable transactions with other subsidiary o f such bank holding company; or persons and does not involve more than the normal risk o f repayment or present other unfavorable (E) that the customer shall not obtain some features. other credit, property, or service from a com petitor o f such bank, a bank holding company o f such bank, or any subsidiary o f such bank holding company, other than a condition or re quirement that such bank shall reasonably im pose in a credit transaction to assure the sound ness o f the credit. (D) N o bank which has outstanding an extension o f credit to an executive officer or director of, or to any person who directly or indirectly or acting through or in concert with one or more persons owns, controls, or has the power to vote more than 10 per centum o f any class o f voting securities of, another bank shall open a correspondent account The Board may by regulation or order permit such at such other bank, unless such extension o f credit exceptions to the foregoing prohibition as it con was made on substantially the same terms, including siders will not be contrary to the purposes o f this interest rates and collateral as those prevailing at section. the time for comparable transactions with other (2) (A) N o bank which maintains a correspondent persons and does not involve more than the normal account in the name o f another bank shall make an risk o f repayment or present other unfavorable extension o f credit to an executive officer or director features. of, or to any person who directly or indirectly or (E) For purposes o f this paragraph, the term acting through or in concert with one or more per “ extension o f credit” shall have the same meaning sons owns, controls, or has the power to vote more given it in section 23A o f the Federal Reserve Act than 10 per centum o f any class o f voting securities and the term “ executive officer” shall have the same of, such other bank unless such extension o f credit meaning given it under section 22(g) o f the Federal is made on substantially the same terms, including Reserve Act. interest rates and collateral as those prevailing at (F) (i) Any bank which violates or any officer, the time for comparable transactions with other 36 REGULATION Y STATUTORY APPENDIX director, employee, agent, or other person par ticipating in the conduct o f the affairs o f such bank who violates any provision o f section 106(b) (2) shall forfeit and pay a civil penalty o f not more than $1,000 per day for each day during which such violation continues. The penalty shall be assessed and collected by the Comptroller o f the Currency in the case o f a national bank, the Board in the case o f a State member bank, or the Federal Deposit Insurance Corporation in the case o f an insured nonmember State bank, by written notice. As used in this section, the term “ violates” includes without any limitation any action (alone or with another or others) for or toward causing, bringing about, participating in, counselling, or aiding or abetting a violation. Comptroller o f the Currency, the Board or the Federal Deposit Insurance Corporation, as the case may be, shall be set aside if found to be unsupported by substantial evidence as provided by section 706 (2) (E) o f title 5, United States Code. (v) If any bank or person fails to pay an assess ment after it has become a final and unappealable order, or after the court o f appeals has entered final judgment in favor o f the agency, the Comptroller o f the Currency, the Board or the Federal Deposit Insurance Corporation, as the case may be, shall refer the matter to the Attorney General, who shall recover the amount assessed by action in the ap propriate United States district court. In such action the validity and appropriateness o f the final order imposing the penalty shall not be subject to review. (ii) In determining the amount o f the penalty the Comptroller o f the Currency, the Board or the Federal Deposit Insurance Corporation, as the case may be, shall take into account the appropriateness o f the penalty with respect to the size o f the financial resources and good faith o f the bank or person charged, the gravity o f the violation, the history o f previous violations, and such other matters as justice may require. (vi) The Comptroller o f the Currency, the Board and the Federal Deposit Insurance Corporation shall promulgate regulations establishing pro cedures necessary to implement this section. (vii) All penalties collected under authority of this section shall be covered into the Treasury of the United States. (iii) The bank or person assessed shall be afforded an opportunity for agency hearing, upon request made within ten days after issuance o f the notice of assessment. In such hearing, all issues shall be de termined on the record pursuant to section 554 of title 5, United States Code. The agency determina tion shall be made by final order which may be reviewed only as provided in subsection (iv). If no hearing is requested as here in provided, the assess ment shall constitute a final and unappealable order. (G) (i) Each executive office and each stockholder o f record who directly or indirectly owns, controls, or has the power to vote more than 10 per centum o f any class o f voting securities o f an insured bank shall make a written report to the board o f directors o f such bank for any year during which such execu tive officer or shareholder has outstanding an ex tension o f credit from a bank which maintains a corresponding account in the name o f such bank. Such report shall include the following information: (iv) Any bank or person against whom an order imposing a civil money penalty has been entered after agency hearing under this section may obtain review by the United States court o f appeals for the circuit in which the home office o f the bank is located, or the United States Court o f Appeals for the District o f Columbia Circuit, by filing a notice o f appeal in such court within ten days from the date o f such order, and simultaneously sending a copy o f such notice by registered or certified mail to the Comptroller o f the Currency, the Board or the Federal Deposit Insurance Corporation, as the case may be. The Comptroller o f the Currency, the Board or the Federal Deposit Insurance Corpora tion, as the case may be, shall promptly certify and file in such court the record upon which the penalty was imposed, as provided in section 2112 o f title 28, United States Code. The findings o f the (1) the maximum amount o f indebtedness to the bank maintaining the correspondent account during such year o f (a) such executive officer or stockholder o f record, (b) each company con trolled by such executive officer or stockholder, or (c) each political or campaign committee the funds or services o f which will benefit such execu tive officer or stockholder, or which is controlled by such executive officer or stockholder; (2) the amount o f indebtedness to the bank maintaining the correspondent account outstand ing as o f a date not more than ten days prior to the date o f filing o f such report o f (a) such execu tive officer or stockholder o f record, (b) each company controlled by such executive officer or stockholder, or (c) each political or campaign committee the funds or services o f which will benefit such executive officer or stockholder; 37 REGULATION Y STATUTORY APPENDIX (3) the range o f interest rates charged on such indebtedness o f such executive officer or stock holder o f record; and the court is held, and subpoenas to that end may be served in any district by the marshal thereof. [U. S. C., title 12, sec. 1973.] (4) the terms and conditions o f such indebted ness o f such executive officer or stockholder of Subpoenas in actions by United States record. (d) In any action brought by or on behalf o f the United States under subsection (b), subpoenas for witnesses may run into any district, but no writ o f subpoena may issue for witnesses living out o f the district in which the court is held at a greater distance than one hundred miles from the place of holding the same without the prior permission o f the trial court upon proper application and cause shown. (ii) Each insured bank shall compile the reports filed pursuant to subparagraph (G) (i) and forward such compilation to the Comptroller o f the Cur rency in the case o f a national bank, the Board in the case o f a State member bank, and the Federal Deposit Insurance Corporation in the case o f an insured nonmember State bank. (iii) Each insured bank shall include in the report required to be made under subsection (k) (1) o f the Federal Deposit Insurance Act (12 U.S.C. 1817(k) (1)) a list by name o f each executive officer or stockholder o f record who directly or indirectly owns, controls, or has the power to vote more than 10 per centum o f any class o f voting securities of the bank who files information required by subparagraph (G) (i) and the aggregate amount o f all extensions o f credit by correspondent banks to such executive officers or stockholders o f record, any company controlled by such executive officers or stockholders, and any political or campaign com mittee the funds or services o f which will benefit such executive officers or stockholders, or which is controlled by such executive officers or stockholders. [U. S. C., title 12, sec. 1974 ] Civil actions (e) Any person who is injured in his business or property by reason o f anything forbidden in sub section (b) may sue therefor in any district court o f the United States in which the defendant resides or is found or has an agent, without regard to the amount in controversy, and shall be entitled to recover three times the amount o f the damages sus tained by him and the cost o f suit, including a rea sonable attorney’s fee. [U. S. C., title 12, sec. 1975.] [U. S. C., title 12, sec. 1972.] Injunctions (f) Any person may sue for and have injunctive relief, in any court o f the United States having (c) The district courts o f the United States have jurisdiction over the parties, against threatened loss or damage by reason o f a violation o f subsection (b), jurisdiction to prevent and restrain violations o f under the same conditions and principles as in subsection (b) o f this section and it is the duty o f junctive relief against threatened conduct that will the United States attorneys, under the direction cause loss or damage is granted by courts o f equity o f the Attorney General, to institute proceedings and under the rules governing such proceedings. in equity to prevent and restrain such violations. Upon the execution o f proper bond against damages The proceedings may be by way o f a petition for an injunction improvidently granted and a setting forth the case and praying that the viola showing that the danger o f irreparable loss or tion be enjoined or otherwise prohibited. When damage is immediate, a preliminary injunction may the parties complained o f have been duly notified issue. o f the petition, the court shall proceed, as soon as possible, to the hearing and determination o f the [U. S. C., title 12, sec. 1976.] case. While the petition is pending, and before final decree, the court may at any time make such tem Limitation o f actions porary restraining order or prohibition as it deems (g) (1) Subject to paragraph (2), any action to just. Whenever it appears to the court that the ends enforce any cause o f action under this section shall o f justice require that other parties be brought be forever barred unless commenced within four before it, the court may cause them to be summoned years after the cause o f action accrued. whether or not they reside in the district in which Judicial proceedings 38 REGULATION Y STATUTORY APPENDIX (2) Whenever any enforcement action is insti tuted by or on behalf o f the United States with respect to any matter which is or could be the sub ject o f a private right o f action under this section, the running o f the statute o f limitations in respect o f every private right o f action arising under this section and based in whole or in part on such matter shall be suspended during the pendency o f the en forcement action so instituted and for one year thereafter: Provided, That whenever the running o f the statute o f limitations in respect o f a cause o f action arising under this section is suspended under this paragraph, any action to enforce such cause o f action shall be forever barred unless commenced either within the period o f suspension or within the four-year period referred to in paragraph (1). (U. S. C., title 12, sec. 1977.] 39 Actions under other Federal or State laws (h) Nothing contained in this section shall be construed as affecting in any manner the right o f the United States or any other party to bring an action under any other law o f the United States or o f any State, including any right which may exist in addition to specific statutory authority, challenging the legality o f any act or practice which may be proscribed by this section. N o regulation or order issued by the Board under this section shall in any manner constitute a defense to such action. [U. S. C., title 12, sec. 1978.]
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