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For release on delivery
10:00 A.M. EDT
May 2, 1995

Testimony of
Susan M. Phillips
Member, Board of Governors of the Federal Reserve System
before the
Subcommittee on Financial Institutions and Regulatory Relief
of the
Committee on Banking, Housing, and Urban Affairs
United States Senate

May 2, 1995

I am pleased to be here today to discuss S. 650, the Economic
Growth and Regulatory Paperwork Reduction Act of 1995. The Board
welcomes its introduction and supports its purpose of relieving costs imposed
on our nation's banking system by governmental regulation when those costs
are not offset by corresponding benefits to the safety and soundness of our
nation's financial institutions, the protection of bank customers, or the
availability of credit.
In my testimony today, I will discuss the Board's efforts to reduce
the cost of regulation and why we believe that legislation is necessary to
continue those efforts. I will then address those portions of the bill that make
major changes to laws administered by the Board, particularly in the area of
bank and branching applications, where I believe the bill would significantly
reduce burden, and in the consumer area. Finally, I will highlight provisions
about which the Board does have concerns. Still, I do not wish these objections
in any way to detract from the central message of my testimony: that the
nation's banking system needs legislation of the type presented by S. 650.
Appended to my testimony is a brief summary of the Board's
comments on certain provisions that are not discussed directly in my testimony.
The Role of Regulation
Banking regulation has clearly defined purposes. They include
protecting the federal safety net and thereby the taxpayer, preserving a strong
banking system, minimizing the destabilizing effects on the economy caused by
any difficulties in the banking system, providing consumer protection, and
ensuring that communities are served by our banking system.
Such regulation, however, cannot succeed if it is designed to
eliminate at any cost the possibility of any bank failure ~ either a financial
failure or a failure to serve customers. Rather, banking regulation must aim to
produce at a reasonable cost the banking system that can best serve our
economy and the American people. Each requirement, restriction, application,

- 2 -

and report imposed may individually be justified at the time of adoption, but
collectively, the amount of regulation created over time may become a
significant obstacle for the community banker and, equally important, someone
hoping to start a community bank.
The aggregate burden on our nation's banks has become
substantial, raising the cost of banking services and thereby encouraging
customers to seek less costly loans and services or higher yielding investments
from other financial intermediaries that are not subject to the same regulatory
requirements. Furthermore, our banks must operate in increasingly competitive
financial markets, both domestic and global. The United States can ill afford to
handicap its banking institutions with unnecessary and dysfunctional regulation.
The Board believes the time has come to reexamine each of our
banking statutes and regulations and decide whether its benefits are
commensurate with its costs. The Board believes that there are restrictions in
current banking law that cannot pass this test. To address this problem, the
Board advocates not only burden relief of the type provided by S. 650 but also
reform of anachronistic statutes such as the Glass-Steagall Act, which
needlessly and significantly hinders the ability of U.S. banking organizations to
compete in their home market. We encourage the full Committee to take up the
matter of Glass-Steagall reform promptly.
Our Efforts at the Board
The recognition that regulatory burden must be reduced is not new
at the Board. Since 1978, the Board has maintained a formal program of
regulatory review and simplification, and in 1986 the Board established a
Regulatory Planning and Review office, charged with ensuring that regulatory
proposals minimize the burdens imposed on those that must comply. The
Board has long believed that significant reductions can be made in regulatory

- 3 burden by eliminating requirements that are redundant or have outlived their
usefulness.
The Board has redoubled these efforts in recent years. For
example, we have streamlined the applications process by shortening processing
times, substituting a notice requirement for an application whenever possible,
waiving applications for transactions reviewed by other regulators, and reducing
the paperwork that must accompany applications and notices. These changes
have reduced both the volume of paper that must be filed by notificants and the
time required for the Board to review nonbanking proposals. Of the more than
3,500 applications and notices acted on during 1994, 94 percent were completed
within the Board's self-imposed 60-day target, with the average period of
review lasting 34 days. In other areas, the Board has worked within the limits
of its governing statutes to expand the list of permissible nonbanking activities
for banking organizations, to remove unnecessary, outdated restrictions on the
conduct of these activities, and to eliminate restrictions that prevented banking
organizations from providing discounts to their customers on packages of
products.
I have attached to my testimony a more complete list of our
initiatives to reduce unnecessary regulatory burden over the past three years.
The Need for Legislative Change
There is a limit, however, to how far we or the other banking
agencies can go in rationalizing the regulation imposed on our nation's banks.
Although we speak of "regulatory" burden, that term is something of a
misnomer. The Board must operate within statutory constraints, and all of our
regulations are either required by statute or are necessary to explain or
implement a statute. Put simply, we have no choice but to regulate, and in
some cases to overregulate.

-4S. 650 provides the type of statutory changes that would allow a
reduction in regulatory burden in many areas without adversely affecting safety
and soundness or other important supervisory and policy concerns.
Applications
One of S. 650's important reforms, from the Board's perspective,
comes in the applications area, where S. 650 would eliminate federal regulatory
review for routine bank acquisitions and branch openings by well-capitalized
and well-managed banking organizations that are helping to meet the credit
needs of their communities. The Board's experience in administering these
statutory requirements over the past 39 years leads us to endorse these
initiatives very strongly.
Currently, the Bank Holding Company Act requires all bank
holding companies to obtain Board approval prior to acquiring control of
another depository institution or merging with another bank holding company.
The bill would eliminate this application requirement for proposals that raise no
serious competitive issue and are made by bank holding companies that met
specified standards for capital, management, and community reinvestment at
their previous examination. The vast majority of proposals processed by the
Board meet these requirements and are routinely approved. Thus, we believe
the cost of continuing the applications process in such cases to be unnecessary
from any public policy perspective. The bill not only would make the
applications process simpler, less burdensome, and more transparent for
qualifying banking organizations but also would provide a powerful incentive
for banking organizations to achieve and maintain strong capital positions, solid
management, and a commitment to the community.
In a similar vein, S. 650 would eliminate branch applications for
banks that meet the specified capital, management, and community reinvestment
standards. The cost of these applications, which are routinely approved by all

-5the agencies, is not justified when the applicant is well-capitalized, wellmanaged, and serving its community. Furthermore, S. 650 would eliminate
branch applications for ATMs in all cases. The law defining a branch to
include an ATM for this purpose is simply an anachronism. Together, these
two changes would eliminate the need for a substantial number of branch
applications filed with the banking agencies.
Finally, S. 650 would eliminate or modify other applications
requirements whose benefits no longer justify their costs, including applications
for investment in bank premises and determinations that a bank holding
company does not control shares of stock that it divests to certain companies.
The Board supports these changes and, indeed, believes that the bill
should go further still. We believe that the provisions in the bill eliminating the
application process for acquisitions by well-managed and well-capitalized
banking organizations need to be extended to routine proposals involving
nonbanking activities (such as mortgage banking or securities brokerage) that
the Board has already determined to be permissible. The application
requirement places bank holding companies increasingly at a competitive
disadvantage with other companies that face no similar federal review
requirement. We estimate that adoption of this proposal could reduce the filing
of notices to engage in nonbanking activities by 60 percent or more. As can be
seen from the attached chart showing the number of applications filed with the
Federal Reserve, the reduction in burden associated with all the changes made
by S. 650 and recommended by the Board would be substantial.
Lastly, we believe that the bill should be amended to eliminate a
hearing provision for nonbanking applications, given the ample opportunity
afforded all parties to make written submissions.

- 6 -

Consumer Reforms
S. 650 contains numerous amendments to the consumer protection
statutes administered by the Board. While time does not permit me to discuss
each of these provisions, I will mention those of particular importance to the
Board.
First, section 236 of the bill would reduce the number of
institutions required to report HMDA data by raising the asset level at which
reporting is mandatory from $10 million to $50 million. The Board believes
that this step would provide important relief to our nation's community banks
without undercutting the goal of the Act.
Second, the bill makes a variety of changes to the Community
Reinvestment Act that, collectively, would affect the way the banking agencies
administer that Act. Some of these changes are directed at concerns the
agencies addressed in their recently revised CRA regulations, such as the small
bank exemption. That multi-year effort recognized that the burden imposed on
small institutions needed to be reduced, and focused on making the CRA
evaluation process more objective, performance-based and predictable. Before
changing the rules in this area once again, we believe that Congress should
pause to consider whether the agencies' efforts will achieve the objectives of
S. 650 in this area. Furthermore, the prohibition on additional reporting would
leave the agencies unable to carry out the mandates of the Act through their
recently adopted regulations. We believe that if an agency is assigned a
responsibility, it should also be granted the tools necessary to fulfill its
mandate.
S. 650 also contains CRA reforms not addressed by the agencies'
recent efforts, particularly incentives for CRA performance. Section 133
provides that any institution that receives a "satisfactory" or "outstanding"
rating is deemed to have met the purposes of the CRA in regard to community

-7credit needs for purposes of the applications process. The Board endorses the
concept of providing incentives to institutions for good CRA performance. As
the Board has previously testified, however, it is important to differentiate in
the offering of incentives between institutions whose performance may be
barely satisfactory and institutions whose performance is close to outstanding.
Accordingly, the Board believes that the Congress should add a new rating
category of "high satisfactory" to the current four-point rating system and then
focus benefits, such as the application relief mentioned earlier, on institutions at
that and the higher "outstanding" level.
Third, the entire Board believes that the Truth in Savings Act could
be amended to make compliance less onerous, but is divided on the merits of
the approach taken in section 141 of the bill. I and a majority of the Board
support the approach of the bill, which would repeal portions of Truth in
Savings. Section 141 would leave intact the requirement that a depository
institution pay interest on the full principal in a consumer's account, thereby
barring the use of the investable and low-balance methods in determining
interest payments. This requirement, which is already in place for financial
institutions generally, benefits consumers without imposing excessive burdens.
In addition, the Congress should prohibit misleading or inaccurate advertising in
the promotion of deposit accounts ~ similar to the approach taken in
H.R. 1362, which leaves in place the current bar on misleading advertisements.
Such a limitation would be valuable in ensuring that consumers are not misled
by advertising that, for example, publicizes high "teaser" rates without
informing consumers of the limited periods for which they are in effect or of
other conditions that will determine the rates actually paid.
Before leaving the consumer area, I would like to make one general
observation. Our consumer regulations are quite detailed, more so than one
might expect. One reason for this detail, and, ironically, the reason why the

- 8 -

industry often demands rather than rejects such detail, is the possibility of civil
liability. Because banks can be liable for any misstep, they ask the Board to
clarify every rule and validate every practice. It may be time for a serious
reexamination of whether all the civil liability provisions in the consumer
statutes are truly needed to protect consumers.
Other Provisions
Although the Board supports the great majority of the provisions of
S. 650, there are three that cause us considerable concern: relaxing the
standards for foreign banks operating in the United States to the extent
proposed, loosening the terms for intraday credit for the Federal Home Loan
Banks, and transferring authority for administering the Real Estate Settlement
Procedures Act (RESPA) to the Board.
Foreign Banks
As currently drafted, S. 650 would amend the Foreign Bank
Supervision Enhancement Act of 1991 (FBSEA) to lower the standards under
which foreign banks may enter and operate in the United States and to reduce
significantly the authority of the Federal Reserve to examine their U.S.
operations on a comprehensive basis. The Board strongly opposes these
provisions of the bill, as they remove many of the important protections that
were considered necessary in the wake of the Banca Nazionale del Lavoro and
BCCI affairs and were included in FBSEA. The Board believes that it is too
soon to conclude that those protections are no longer necessary, and sees no
evidence that they are not.
More specifically, the bill would permit the Board to deny entry to
foreign banks only on the very narrow ground that establishment of an office by
a foreign bank would place at risk the safe and sound operation of the U.S.
financial system « a standard that even BCCI probably would not have failed.
The bill would also deprive the Board of important examination authority.

-9Because the activities of the various U.S. banking offices of a foreign bank are
often highly intertwined, examinations need to be coordinated not only to avoid
duplication of effort but also to ensure a complete and comprehensive picture of
the organization, reducing the potential for financial manipulation. To this end,
in 1994 the Federal Reserve and other state and federal bank regulatory
authorities that supervise over 90 percent of the assets of U.S. branches and
agencies of foreign banks announced a joint program to enhance the supervision
of foreign banks.
While the Board believes that these provisions go too far, the
Board believes that some provisions of FBSEA should be reevaluated ~ most
notably the inflexible requirement that the Board may not approve an
application unless a foreign bank is subject to comprehensive consolidated
supervision by home country authorities. This standard has proved a significant
barrier to entry for banks from jurisdictions, especially developing countries,
that have not yet implemented a policy of consolidated supervision. The Board
would recommend adding a provision to S. 650 that would allow a foreign bank
that meets all other requirements to open a limited office in the United States,
subject to appropriate safeguards, if the bank's home country is making
progress toward consolidated supervision. This amendment would give wellrun foreign banks from developing countries an opportunity to establish a
limited presence in the United States, while still providing an incentive for
home country authorities to continue to implement reforms for consolidated
supervision. While the Board supports the setting of a deadline for action on
applications for foreign bank entry, the deadline in the bill is too restrictive,
given the difficult issues raised in many foreign bank cases.
Daylight Overdrafts
Also of concern to the Board is section 305 of the bill, which
would essentially require the Federal Reserve to make intraday credit, in the

- 10 -

form of daylight overdrafts, available to the Federal Home Loan Banks. This
would create a non-market source of short-term funding for the Federal Home
Loan Bank system without the costs incurred by depository institutions in
maintaining required reserves. Section 305 would thereby serve as a precedent
for government-sponsored enterprises to escape the market discipline inherent in
their statutory funding schemes. The Board opposes extending this taxpayer
subsidy to the Federal Home Loan Banks.
RESPA
S. 650 attempts in a very limited way to improve the administration
of the Real Estate Settlement Procedures Act, or RESPA, by transferring
regulatory authority from the Department of Housing and Urban Development
to the Board. Although such a transfer may have some intuitive appeal because
of the Board's Truth in Lending responsibilities, there are important reasons
why the Board is concerned about this provision. First, unlike Truth in
Lending, certain portions of RESPA are in essence a price-regulation scheme —
one which the Board lacks expertise to administer and which is foreign to the
Board's central bank responsibilities. Second, even if the Board were better
suited to the task, simply transferring responsibility from one agency to another
does not achieve substantial reform or, necessarily, burden reduction.
Instead, we offer a different solution for RESPA. The Board
believes that an in-depth reassessment by the Congress of RESPA's fundamental
requirements is more to the point. We believe that the Congress should set
aside the very complex issues raised by RESPA for separate hearings that could
focus on the substance of RESPA rather than on administrative jurisdiction.
There are serious questions to be considered, including, for example, the
suggestion by some parties to real estate transactions that RESPA may be
stifling innovation and technological advancement from which the public might
benefit.

-11 -

We urge the Congress to undertake such an assessment rather than
simply transfer regulatory authority. We believe that the Board is not the
appropriate locus for this responsibility.
Closing Thoughts
In closing, I would like to expand on one thought I mentioned
earlier: that when Congress or the agencies impose a regulatory burden, there
are generally good reasons for doing so at the time. As time passes, however,
the reasons for imposing the requirement may subside, but the requirement
takes on a life of its own. A good example of this phenomenon is the 60-yearold Glass-Steagall Act, a law that was a response to a time and a financial
system that bear little relation to our own.
S. 650 addresses half of this problem by requiring the agencies to
reexamine each regulation on a regular basis, a provision the Board endorses.
However, as S. 650 elsewhere recognizes, there are some things that only the
Congress can do. For that reason, the Board hopes that the Congress would
commit itself to a similar reexamination of the banking statutes themselves ~
either through the use of sunset provisions where appropriate or, less formally,
through periodic oversight hearings on existing statutes and regulatory burden.

ADDITIONAL VIEWS OF THE FEDERAL RESERVE BOARD
Section 112 — Alternative disclosures for alternative rate mortgages
The Board supports this provision and favors expanding it. The
provision gives creditors the option of including in their Truth in Lending
disclosures a 15-year historical table of index values and other information
(which the Act currently requires) or a statement that monthly payments may
increase or decrease substantially due to increases or decreases in the annual
percentage rate. As written, for closed-end credit the option would be available
only for "residential mortgage transactions" (as defined in the Act). The
provision should be revised to apply to all variable-rate transactions with a term
greater than one year secured by a consumer's principal dwelling.
Sections 113-120 — Provisions relating to disclosures, error tolerances, and
rescission rights under Truth in Lending
The Board supports the direction of these reforms, which resolve
issues associated with lender liability for errors in Truth in Lending disclosures.
Section 133 — Community input and conclusive rating
Though the Board generally supports the idea of incentives for
improved CRA performance, the approach contained in this section raises
several concerns. The purpose of the section appears to be to reduce the
possibility of delays in the applications process caused by protests by
community advocacy groups and other members of the public. However, by
allowing members of the public to appeal CRA ratings, the approach taken
would move the point of contention from the application process, in which some
banks and holding companies are involved, to the examination process, in
which all banks are involved. Furthermore, banks are examined by the federal
supervisory agencies on a much more regular, and frequent, basis than most of

- 2 -

them are involved in the applications process. If appeals of ratings are filed in
any significant numbers by community groups and other members of the public,
this provision may have the unintended consequence of increasing the burden on
banks generally. A more straightforward way of providing incentives for good
CRA performance, without inadvertently adding to burden, is to provide that
superior performance (as indicated in the testimony we favor a "high
satisfactory" rating or better) is conclusive in the applications process.

Section 134 ~ Special purpose banks
The Board supports the general thrust of this section, that is, to
provide a more appropriate method for evaluating special purpose banks, such
as credit card banks. Banks would qualify for this treatment based on whether
they generally take retail deposits in amounts of less than $100,000. The
agencies adopted a similar provision, calling for a specialized evaluation
approach, in the revised Community Reinvestment Act regulations they recently
issued. However, those regulations cover wholesale as well as "limited
purpose" banks, and base the determination of whether a particular bank is
wholesale or limited purpose on the type of credit offered, rather than on
whether it accepts retail deposits. (Under the regulation, a "wholesale bank" is
one that is not in the business of extending home mortgage, small business,
small farm or consumer loans to retail customers, and a "limited purpose bank"
is one that offers only a narrow product line (such as credit cards or motor
vehicle loans) to a regional or broader market.)

The criteria used in the

revised regulation seem more germane to CRA, since the law primarily
concerns credit, and seem likely to apply to more banks than would the deposit
criteria of this section. Consequently, it may be preferable to use the
regulation's approach.

- 3 Section 208 -- Elimination of requirement for approval of investment in
bank premises for well-capitalized and well-managed banks
The Board supports this provision, which would allow investments
up to 150 percent of the bank's capital without federal approval. Applications
to invest in bank premises are routinely approved for well-capitalized and wellmanaged banks. Any possible abuses in this area c|ould still be monitored
through the examination process.

Section 209 ~ Elimination of approval requireme nts for divestiture
The Board supports this provision. Cui*rent law presumes that a
bank holding company that divests shares of any co mpany to a third party
investor in a transaction funded by any subsidiary of the bank holding company
is presumed to continue to control those shares unles s the Board determines that
the divestiture is genuine. This provision was inten ded to prevent sham
divestitures, but the application burden imposed on the banking industry has not
proven to be worth this requirement. The Board ca:n detect sham transactions
through the examination process.

Section 210 — Elimination of unnecessary filing for officer and director
appointments
The Board supports this provision, whi h would narrow an
overbroad notice requirement that is currently impos ing a large burden on the
industry and the agencies. Removing the filing req uirement for adequately and
well-capitalized banks that are not in troubled condition will reduce the burden
without posing risks to safety and soundness.

-4Section 211 ~ Amendments to the Depository Institutions Management
Interlocks Act
The Board supports this provision, which would restore the
authority of the federal banking agencies to grant relief from the Act's
restrictions where appropriate. This section would also adjust the size limit for
the small bank exception to account for inflation and industry growth and
remove the termination date for interlocks grandfathered by the original Act.
The Board supports all these steps.

Section 212 — Elimination of recordkeeping and reporting requirements for
officers
The Board supports this provision, which would take steps to
reduce the paperwork burden associated with the insider lending restrictions of
the Federal Reserve Act. The coverage of the insider lending restrictions have
been dramatically broadened by FIRREA and FDICIA to treat, for some or all
of the insider lending restrictions, insiders of affiliates of a bank as insiders of
the bank itself. Thus, for example, the statute currently requires banks to
identify and document any loan to a director or officer of even an out-of-state
or overseas affiliate. The paperwork burden imposed by this requirement is
substantial.
Section 212 would allow the Board to exempt from the
requirements of its Regulation O officers and directors of bank affiliates when
those officers or directors are expressly excluded from major policymaking
functions at the bank, and thus when there is no incentive to extend a loan on
preferential terms. Indeed, in most such cases, the person making the loan
should be unaware of the borrower's status.
Section 212 would also eliminate various reports that are
duplicative or that experience has taught us do not produce useful information.

-5 Section 213 — Abolition of Appraisal Subcommittee; transfer of functions
The Board supports the transfer of functions from the Appraisal
Subcommittee to the FFIEC. This transfer will save resources without
adversely affecting the quality of appraisals. The Board will forward some
technical changes regarding the mechanics of the transfer.

Section 214 — Branch closures
The Board has no objection to the substance of these amendments,
but notes that an interagency policy statement has already interpreted the branch
closing statute as not applying to the closing of ATMs, to the relocation of a
branch within the same immediate neighborhood, and to consolidations of more
than one branch that otherwise meet the test for a relocation. Section 214
would in essence reconfirm that interpretation, but in different language that
could necessitate an additional policy statement, could result in a slightly
different interpretation, and could therefore result in confusion.

Section 221 -- Small bank examination cycle
Section 221 would allow, but not require, the agencies to examine
smaller institutions as infrequently as every 24 months, instead of 18 months as
currently. Although the agencies would retain authority to examine as
frequently as necessary, the Board has concerns about this provision. Our
experience has been that waiting two years between examinations is too long,
and we have some concern that this amendment would increase pressure on the
Board and the other agencies to do so.

Section 233 - Recording Requirements
This section would eliminate the current requirement that a
financial institution record the method used to verify the identification of an

-

6

-

accountholder who purchases bank checks, cashier's checks, traveler's checks,
or money orders over $3000 in amount in exchange for cash. The Board
supports the elimination of this recordkeeping requirement. If a financial
institution has a proper anti-money-laundering program in effect, this
requirement should not be necessary.
This section also eliminates the authority for a financial institution
to issue such monetary instruments in amounts over $3000 to nonaccountholders. This would impose an undue burden on people who may not
hold a checking account, because they would have no ability to purchase a
money order, cashiers check or traveler's check in an amount over $3000.
However, staff has been advised that this result may have been unintended and
will be corrected in the final bill.
Section 234 - Identification of nonbank financial institution customers
This section repeals the requirement that the Treasury Department
issue regulations requiring each depository institution to identify and report all
accountholders who are financial institutions, except other depository
institutions and registered broker/dealers. The Board concurs with this
proposal. The accountholders covered by such reports include pawnbrokers,
investment bankers and investment companies, currency exchanges and issuers
of traveler's checks, loan or finance companies, car salesmen, people involved
in real estate closings, and the U.S. Post Office. The benefit to combatting
money-laundering from such reports is likely to be small; conversely, the
burden of establishing and maintaining these records would be significant.

- 7 -

Section 236 ~ Increase in Home Mortgage Disclosure Act disclosure
exemption
As noted in the testimony, the Board supports the exemption for
institutions with $50 million or less. Section 236(a)(2) of the legislation would
authorize the Board also to exempt from coverage any institution with assets
exceeding $50 million if the burden of complying outweighed the usefulness of
the data to be disclosed. If this provision is enacted, the Board would likely
establish general standards for such an exemption, as case-by-case exemptions
are not feasible.

Section 242 — Paperwork reduction review
While the Board does not oppose conducting the review required by
this section, such a review appears already to fall within the mandate of
section 303 of the Riegle Community Development and Regulatory
Improvement Act of 1994. Placing a portion of that review on a different
schedule could complicate the agencies' task.

Section 301 — Audit costs
The Board supports the elimination of the auditor attestation
requirements of section 36(e) of the Federal Deposit Insurance Act, which have
increased audit costs for depository institutions without any comparable benefit.

Section 302 — Incentives for self-testing
The Board supports this provision, which encourages self-testing
for compliance with the fair lending statutes by restricting government access to
the results. Some reworking of the language is needed, however, to make clear
that an agency is not prevented from making a referral to the Attorney General
or the Secretary of HUD based on the agency's examination or investigation of

- 8 -

an institution. Moreover, a referral should not be barred simply because a
creditor has, through its own analysis or review, identified a possible violation
of the ECOA — and then failed to take corrective action.
A "not" appears to be missing from the paragraphs regarding
referrals to the Attorney General or HUD (which we believe are intended to say
that an agency may not refer a matter based on results from an institution's selftesting program).
Section 304 — Qualified thrift investment amendments
The purpose of the qualified thrift lender test is to encourage home
lending, but this amendment would include as qualifying loans both credit card
loans and education loans, which are unrelated to home lending. The addition
of these types of loans would greatly expand the eligibility for Federal Home
Loan Bank membership as well as the ability of nonbanking and commercial
companies to take advantage of the unitary thrift exemption from the Home
Owners' Loan Act. The Board does not believe that the subsidy created by
FHLB membership should be extended in these ways.
Section 308 -- Limited purpose bank growth cap relief
This amendment would eliminate the seven percent annual cap on
asset growth currently imposed on nonbank banks — insured banks that were
acquired by industrial, commercial and financial companies without becoming
subject to the provisions of the Bank Holding Company Act and are therefore
not subject to the Act's separation between banking and commerce and
comprehensive framework of prudential and supervisory standards that govern
the corporate owners of insured banks.
In 1987, Congress closed this loophole, but instead of requiring the
56 companies then operating as nonbank banks (now 24) to divest their banks,

- 9

-

Congress permitted those companies to retain ownership subject to, among
other things, a seven percent annual cap on growth. In the grandfathering
statute, Congress stated that the growth cap and other limitations were needed
because banks controlled by commercial and industrial companies could
compete unfairly against banks controlled by bank holding companies whose
activities are limited under federal law. Congress also stated that limitations
were necessary because of concerns about conflicts of interest, concentration of
resources, and adverse effects on safety and soundness that could result from
the ownership of insured banks by commercial and industrial companies not
subject to federal supervision and regulation.
The Board does not believe that removal of the growth cap or the
other restrictions that apply to nonbank banks would be appropriate absent more
comprehensive reform, as is currently pending in bills reforming the GlassSteagall Act.

APPLICATIONS PROCESSED BY THE FEDERAL RESERVE SYSTEM
DURING 1994

Transaction

1994
Total

Bank Holding Company Act Applications
Bank Acauisitions
Application to Form a Bank Holding Company
12 USC 1842(a)(1)

298

Application for a Bank Holding Company to Acquire a Bank12 USC 1842(a)(3)

296

Application for a Bank Holding Company to Merge
with Another Bank Holding Company
12 USC 1842(a)(5)

108

Nonbankine Activities of a Bank Holding Company
12 USC 1843(c)(8)
Notice to Engage de novo in a Listed Nonbanking Activity

158

Notice to Acquire a Company Engaged in a Listed Nonbanking Activity

367

Notice to Engage in, or Acquire a Company to
Engage in, an Unlisted Nonbanking Activity

41

Notice to Expand FCM Activities

15

Request by a Bank Holding Company to Extend the Period to Hold
Shares Acquired in Satisfaction of a Debt Previously Contracted12 USC 1843(c)(2)
Request by a Bank Holding Company for a Determination of Non-Control
12 USC 1841(g)

N/A11

- In 1994, 135 of these applications were waived because they raised no significant issue
and were reviewed by the bank's primary regulator under the Bank Merger Act.
- Processed by the Reserve Banks under delegated authority.
- N/A = Data not available.

Transaction

1994
Total

Federal Reserve Act Applications
Application for Membership in the Federal Reserve System
12 USC 321
Federal Reserve Bank Stock
Application to Acquire Stock in a Federal Reserve Bank
12 USC 282
Application to Adjust Holding of Stock in a Federal Reserve Bank
12 USC 287
Application to Cancel Stock in a Federal Reserve Bank
12 USC 287
Notice by a State Member Bank to Establish
or Operate a Domestic Branch12 USC 321
Notice by a State Member Bank to Reduce its Capital Stock
12 USC 329

92

N/A

N/A

de
minimis
1,274

de
minimis
125

Application by a State Member Bank
to Invest in its Premises
12 USC 371d
Request by a State Member Bank to
Pay a Dividend Exceeding the Dividend Limit
12 USC 56, 60 & 321
Application by a State Member Bank to Change the
General Character of its Business or Scope of its Corporate Powers
12 USC 322
Application by a State Member Bank
to Make Certain Public Welfare Investments
12 USC 338a

0

de
minimis
15

- These applications recently were streamlined for banks in satisfactory condition, and
with satisfactory CRA and compliance records, to a notice procedure requiring one newspaper
publication.
-2-

Transaction

1994
Total

International Banking Applications
U.S. Banking Organizations' Operations Abroad
Application or Notice by a U.S. Banking Organization
to Establish a Foreign Branch
12 USC 601

20

Application or Notice by a U.S. Banking Organization
to Make Certain Foreign Investments
12 USC 615 & 1843(c)(13)

34

Application by a U.S. Banking Organization to Act as a Futures Commission
Merchant on Certain Foreign Exchanges Requiring Mutual Guarantees
12 USC 615

0

Application by Insured Banks to Invest Abroad
Through Sovereign Debt-for-Equity Conversions
12 USC 615

0

Edee or Agreement Coroorations
Application to Establish, or Amend the Articles of
Incorporation, of an Edge or Agreement Corporation
12 USC 603, 611 & 619

4

Notice to Establish a U.S. Branch of an Edge or Agreement Corporation
12 USC 611

2

Notice of Change in Control of an Edge Corporation
12 USC 619

3

Application by an Edge or Agreement Corporation to Engage in U.S.
Activities that are Not Listed as Permissible in Regulation K
12 USC 615

0

Notice to Engage in U.S. Activities when Foreign Bank Parent of Edge or
Agreement Corporation is not Subject to the Nonbanking Limits of the
BHC Act.12 USC 619

0

- Since 1987, all foreign banks that own Edge Corporations are made subject to the BHC
Act. The footnoted provision applies to a limited number of grandfathered foreign banks that
acquired Edge Corporations before 1987 and are not otherwise subject to the BHC Act
because they have no other U.S. banking presence.
-3-

Transaction
Foreien Bank ODerations in the United StatesApplication by a Foreign Bank to Establish a Branch, Agency,
Commercial Lending Company, or Representative Office in the U.S.
12 USC 3105(c) & 3107

1994
Total
8

Notice to Change a Foreign Bank's Home State
12 USC 3103

0

Notice of Change in Control of a Foreign Bank with a U.S. Office
12 USC 3105(c)

0

Application for a Qualifying Foreign Banking
Organization ("QFBO") Exemption
12 USC 1843(c)(9)

0

Request by a Foreign Bank to Engage in Activities or Make
Investments Otherwise Not Permitted by the Bank Holding Company Act
12 USC 1843(c)(9)

9

ExDort Tradins Companies
Notice to Establish an Export Trading Company
12 USC 1843(c)(14)
Notice by an Export Trading Company to Engage in Certain Activities
12 USC 1843(c)(14)

0

0

- Foreign banks must apply under the BHC Act to engage both in banking and financial
nonbanking activities in the United States. These applications are described under the
BHC Act section beginning on page 1. However, foreign banks may qualify for exemptions
from the nonbanking limits of the BHC Act, solely for nonbanking activities that are not
financial in nature. Application requirements that apply to these so-called Qualifying Foreign
Banking Organizations ("QFBOs") are described in this section.
-4-

Transaction

1994
Total

Miscellaneous Applications and Notices
Notice of Change in Control of a State Member Bank
or a Bank Holding Company
12 USC 18170)

167

Application by a State Member Bank Under the Bank Merger Act
12 USC 1828(c)

124

Application by a Subsidiary Bank of a Bank Holding Company
to Merge BIF and SAIF Deposits in One Institution (Oakar Transactions)
12 USC 1815(d)(3)

203

Application by a Bank Holding Company to Acquire
a SAIF-Insured Commercial Bank (Sasser Transactions)
12 USC 1815(d)(2)(G)

de
minimis

Notification of Changes in Senior Executive Officers and Directors
at New or Troubled Bank Holding Companies and State Member Banks
12 USC 183 li

549

Notice by a State Member Bank of a Branch Closing12 USC 183 lr-1

N/A

Request by a State Member Bank to Permit Certain Management Interlocks
12 USC 3206

1

Applications under the Bank Service Corporation Act
12 USC 1865

8

Notice for a Municipal Securities Principal or Representative
to Associate with a Bank Municipal Securities Dealer
15 USC 78o-4, 78g & 78w^

268

Notice for a Municipal Securities Principal or Representative
to Terminate Association with a Bank Municipal Securities Dealer
15 USC 78o-4, 78g & 78w

308

Application for Non-Member Banks to Extend Credit
on Registered Securities to Broker-Dealers
15 USC 78h & 78w

2

Requests to Modify the Performance of Commitments
or Conditions in Board Orders

27

- For information purposes only; no Federal Reserve System approval is required.
- No Federal Reserve System action is required.
-5-

Transaction
Redemption of Capital Instruments
Notice by a Bank Holding Company to Purchase
or Redeem its Equity Securities12 USC 1844(c)
Notice by a State Member Bank or Bank Holding Company to Redeem
Perpetual Preferred Stock Constituting Qualifying Capital under the Board's
Risk-Based Capital Guidelines

1994
Total
53

3—

Notice by a State Member Bank or Bank Holding Company to Redeem, Prior
to Maturity, Subordinated Debt Constituting Qualifying Capital under the
Board's Risk-Based Capital Guidelines

2

Notice by a State Member Bank or Bank Holding Company to Redeem
Hybrid Capital Instruments and Mandatory Convertible Debt Securities

0

- In 1992, the Board eliminated this notice requirement for well-capitalized bank holding
companies.
— This total identifies the number of requesting institutions and does not reflect possible
multiple requests from the same institution.
-6-

ACTIONS BY THE FEDERAL RESERVE SYSTEM
TO EASE REGULATORY BURDEN: 1992-PRESENT

Actions Taken Pursuant to the Bank Holding Company Act
Exempted Certain Bank Acquisitions from Application Requirement

6/23/92

Waived bank holding company application for certain bank acquisitions where the
underlying transaction is a bank merger reviewed by the bank's primary regulator
under the Bank Merger Act and raise no issues under the Bank Holding Company
Act. See 12 C.F.R. 225.12(d)(1).
Streamlined One-Bank Holding Company Formation Process

10/27/94

Replaced application procedure with a 30-day notice procedure for the formation of a
one-bank holding company where the shareholders of the bank will acquire the shares
of the newly formed bank holding company in substantially the same proportional
interest as they held in the bank. See 12 C.F.R. 225.15.
Shortened Waiting Period for Bank Acquisitions and Mergers

10/27/94

Established a procedure to shorten from 30 days to 15 days, with the consent of the
Attorney General, the post-approval waiting period for bank acquisitions and mergers.
See 12 C.F.R. 225.14(i).
Eliminated Application for Certain Acquisitions of Nonbank Assets

6/23/92

Increased the relative size of nonbank assets (from 20 percent to 50 percent of the
acquiring company's assets) that may be acquired by a bank holding company in the
ordinary course of business without prior Federal Reserve approval. Such assets must
relate to activities the bank holding company previously received approval to conduct.
See 12 C.F.R. 225.22(c)(7) and 225.132.
Expanded Expedited Notice Procedure for Small Nonbank Acquisitions

6/23/92
10/27/94
Increased the size of companies engaged in a permissible nonbanking activity that may
be acquired with expedited 15-day notice to the greater of $15 million or 5 percent of
the consolidated assets of the acquiring company up to a maximum of $300 million.
See 12 C.F.R. 225.23(e).

-2-

Simplified Notice Procedure to Engage in a Permissible Nonbanking Activity

10/27/94

Replaced application requirement with a simplified 30-day notice procedure to engage
de novo or through an acquisition in a permissible nonbanking activity listed in
Regulation Y. The notice must generally be acted upon within 30 days of receipt of
the notice by a Reserve Bank. See 12 C.F.R. 225.23(a)(1) & (2).
Established Notice Procedure to Engage in an Unlisted Nonbanking Activity

10/27/94

Replaced application requirement with a 60-day notice procedure to engage de novo
or through an acquisition in nonbanking activities not listed in Regulation Y.
See 12 C.F.R. 225.23(a)(3).
Eliminated Pre-Acceptance Period for Nonbanking Applications and Notices

10/27/94

Eliminated 28 day pre-acceptance period for notices involving nonbanking proposals.
Previously 12 C.F.R. 225.23(c).
Shortened Public Comment Period for Listed Nonbanking Activities

10/27/94

Reduced from 30 days to 15 days the public comment period for proposals involving
nonbanking activities listed in Regulation Y. See 12 C.F.R. 225.23(c)(1).
Amended "Laundry List" of Permissible Non-Banking Activities
• Expanded Permissible Leasing Activities

5/14/92

Amended Regulation Y to add certain higher residual value leasing activities.
See 12 C.F.R. 225.25(b)(5).
• Expanded Permissible Investment Advisory Activities

8/10/92

Amended the Board's interpretive rule on permissible investment advisory activities to
allow a bank holding company to broker shares of mutual funds advised by the bank
holding company. See 12 C.F.R. 225.125(h).
• Expanded Permissible Securities Brokerage Activities

9/4/92

Amended Regulation Y to add full-service brokerage activities to the "laundry list" of
permissible nonbanking activities for bank holding companies and to reduce the
conditions applied to the conduct of this activity. See 12 C.F.R. 225.25(b)(15).

i

-3• Expanded Permissible Investment and Financial Advisory Activities

9/4/92

Amended the Board's Regulation Y to add the activities of providing financial advice
to state and local governments, providing merger and acquisition advice, and
providing financial and transaction advice with respect to interest rate and currency
swaps, caps and similar transactions. See 12 C.F.R. 225.25(b)(4).
• Reduced Prior Approval for Certain FCM Activities

5/25/93

Issued an interpretation reducing, and in some cases eliminating, the prior approval
requirements for bank holding companies proposing to engage in certain futures
commission merchant activities. In cases where the prior approval requirement was
reduced, a simplified 20-day notice procedure was substituted for the previous
application requirement (SR 93-27). See 12 C.F.R. 225.25(b)(18) & (19).
Modified Treatment of Section 20 Companies
• Modified Section 20 Revenue Calculations

12/14/92

Adopted "neutral" treatment for revenues derived by a section 20 subsidiary from
underwriting and dealing in certain types of mortgage-backed securities.
1/26/93
Adopted an optional indexed-revenue test for section 20 subsidiaries to allow for
adjustment of the revenue test in light of changes in the level and structure of
interest rates.
• Permitted Cross-Marketing of Bank-Eligible Securities

12/14/94

Clarified that a bank or thrift or their subsidiaries may act as riskless principal or
broker for customers in buying and selling bank-eligible securities that an affiliated
section 20 subsidiary underwrites or deals in, subject to certain limitations.
• Permitted Underwriting/Dealing in Unrated Municipal Revenue Bonds
Permitted section 20 subsidiaries to underwrite and deal in unrated municipal
revenue bonds.

12/5/94

Adopted Exceptions to the Anti-tying Provisions

1994-95

Established broad classes of exceptions to the anti-tying prohibitions of the Bank
Holding Company Act Amendments of 1970 and the Board's Regulation Y to permit
banks and bank holding companies to offer customers certain discount arrangements.
See 12 C.F.R. 225.7.
• Traditional Bank Product Exception
7/27/94
Extended statutory traditional bank product exception to allow bank holding company
affiliates, bank and nonbank, to vary the consideration for a traditional bank product
(loan, discount, deposit, or trust service) on the condition or requirement that a
customer also obtain a traditional bank product from an affiliate.
See 12 C.F.R. 225.7(b)(1).
• Securities Brokerage Exception
7/27/94
Permitted bank holding company affiliates, bank and nonbank, to vary the consideration
for securities brokerage services on the condition or requirement that a customer also
obtain a traditional bank product from that company or an affiliate.
See 12 C.F.R. 225.7(b)(2).
• Arrangements Not Involving Banks
12/15/94
Permitted a bank holding company and/or any nonbank subsidiary thereof to vary the
consideration for any of its products or services on the condition or requirement that a
customer also obtain any other product or service from that company or from any of
its nonbank affiliates. This action generally removed Board-imposed restrictions on
tying when no bank is involved in the arrangement. See 12 C.F.R. 225.7(b)(3).
• Combined-Balance Discounts
4/19/95
Established a "safe harbor" to permit a bank or nonbank subsidiary of a bank holding
company to offer a combined-balance discount on any product or package of products
if a customer maintains a combined minimum balance in deposits and other products
specified by the company offering the discount. See 12 C.F.R. 225.7(b)(4).
Eliminated Approval Requirement for Certain Public Welfare Investments

12/2/94

Permitted bank holding companies to make certain public welfare investments without
additional approval if they previously received approval to engage in activities that
promote community welfare. See 12 C.F.R. 225.127.

-5-

Other Actions Affecting Bank Holding Companies
Eliminated Certain Stock Redemption Notices

8/25/92

Eliminated notice for well-capitalized bank holding companies seeking to purchase or
redeem their own equity securities. See 12 C.F.R. 225.4.
Modified Real Estate Appraisal Requirements

6/6/94

Increased to $250,000 the threshold level at or below which appraisals are not
required; expanded and clarified the type of transactions that are exempt from the
appraisal requirement; narrowed the type of exempt transactions for which evaluations
are required; and revised the requirements governing appraisal content and the use of
appraisals prepared by other financial services institutions (SR 94-35).
See 12 C.F.R. 225.61 through 225.67.
Reduced Bank Holding Company Reporting Requirements

2/28/95

Reduced annual FR Y-6 reporting requirements for bank holding companies:
eliminated requirement to submit consolidated and parent company financial
statements; raised requirement for audited financial statements to include only holding
companies with assets of $500 million or more; eliminated requirement to submit
nonbank subsidiary financial statements; eliminated requirement to submit certified
copies of amendments to organizational documents; eliminated the collection of
information on certain insider loans; and eliminated the confirmation of changes in
investments and activities. See 60 Federal Register 12,215 (March 6, 1995).
Proposed to Eliminate Non-Control Determinations for Certain Divestitures

3/20/95

Proposed rule to eliminate the need for a bank holding company, under certain
circumstances, to obtain a Board determination of "non-control" under section 2(g)(3)
of the Bank Holding Company Act for shares or assets that it has sold to a third party
with financing. See 12 C.F.R. 225.32. See also 60 Federal Register 15,881
(March 28, 1995).

-6-

Actions Taken Pursuant to the Federal Reserve Act
Streamlined Process to Establish a Branch

6/23/92

Replaced application requirement with a streamlined notice procedure for state
member banks in satisfactory condition, and with satisfactory CRA and compliance
records, to establish or operate a domestic branch. See 12 C.F.R. 208.9.
Modified Treatment of Certain Transactions Between Affiliates

9/4/92

Excluded from section 23A of the Federal Reserve Act transactions between affiliated
insured depository institutions that are subject to review under the Bank Merger Act.
See 12 C.F.R. 250.241.
Eliminated Prior Approval for Certain Investments in Bank Premises

5/25/94

Eliminated Board approval for a state member bank that meets certain conditions to
invest in bank premises in an amount up to 50 percent of its Tier 1 capital.
See 12 C.F.R. 208.22.
Eliminated Prior Approval for Certain Public Welfare Investments

11/30/94

Permitted state member banks to make certain investments designed primarily to
promote the public welfare without prior approval. See 12 C.F.R. 208.21.
Modified Treatment of Certain Loans to Executive Officers, Directors and Principal
Shareholders (Regulation O)
• Loans to Affiliates

12/17/92

Clarified that prohibitions of loans to executive officers contained in section 22(h) of
the Federal Reserve Act do not apply to loans made by a bank to its holding company
and its affiliates as such loans are covered by section 23A of the Federal Reserve Act.
See 12 C.F.R. 215.2(m)(2).
• Aggregate Lending Limits

4/27/93

Adopted three exceptions to the aggregate lending limits: extensions of credit
(1) secured by obligations of the U.S. or other obligations fully guaranteed as to
principal and interest by the U.S.; (2) to or secured by commitments or guarantees of
a department or agency of the U.S.; and (3) secured by a segregated deposit account
with the lending bank. See 12 C.F.R. 215.4.

Recordkeeping

2/18/94

Provided alternatives for tracking loans to insiders of affiliates; eliminated tracking of
loans to related interests for some limited purpose banks; increased credit card
exemption; added executive officer exemption; and increased non-preferential lending
to insiders. See 12 C.F.R. 215.3, 215.4, 215.5 & 215.8.
• Tangible-Economic-Benefit Rule

2/18/94

Clarified the "tangible-economic-benefit rule" to ensure that a bank could continue to
make loans to customers to acquire property, goods, or services from a bank insider
on non-preferential terms. See 12 C.F.R. 215.3(f).
Modified Certain Procedures to Examine State Member Banks
• Established Uniform Examination Reports

11/30/92

Established, with the other bank regulatory agencies, a uniform report of examination
for commercial banks (SR 93-17).
• Combined Examination and Inspection Reports

8/17/94

Established a procedure to issue one combined examination/inspection report for a
bank holding company whose lead bank is a state member bank (SR 94-46).
• Coordinated Examination Schedules

5/6/94

Established a procedure to provide state member banks with the option of having
specialty examinations (e.g., electronic data processing or trust examinations)
concurrently with safety and soundness examinations. Further coordinated inspection
of a bank holding company with examination of a state member bank (SR 94-31).
• Modified Examination Frequency Guidelines
6/8/94
Expanded use of alternate year exam programs (AEPs) with state banking departments
and an 18-month examination schedule for small banks (under $100 million) (SR 94-36).
12/30/94
Raised asset limit from $100 million to $250 million for composite "1" banks that are
well-capitalized and well-managed to qualify for the less burdensome 18-month
examination schedule. Permitted certain composite "2" banks under $100 million in
assets to qualify for the 18-month examination schedule (SR 94-64).

{

-8-

Adopted Regulatory Exceptions for Banks in Disaster Areas

5/13/92

Established procedures, along with other federal regulators, for the expedited provision
of financial services and other help to rebuild areas of Los Angeles and other cities
affected by civil disturbances. Efforts to restructure debt or extend repayment terms -if consistent with safety and soundness ~ should not be criticized (SR 92-16).
9/3/92; 11/30/92
Established policy, pursuant to the Depository Institutions Disaster Relief Act to grant
regulatory relief from certain statutes and regulations in order to facilitate recovery
from major disasters (SR 92-29 & 92-47).
Revised Call Reports

2/6/92

Revised the definition of Highly Leveraged Transactions and phased out the use of the
definition after the June 30, 1992 reporting period.
10/21/94
Repealed, pursuant to section 308 of the Riegle Community Development and
Regulatory Improvement Act of 1994, the requirement that state member banks publish
call reports (SR 94-52).
Actions to Enhance Credit Availability
3/10/93
Issued interagency policy statement to reduce regulatory impediments to credit
availability. Specific actions: (1) reduced appraisal burden and improved climate for
real estate; (2) reduced unnecessary documentation requirements for small business
loans; (3) improved coordination and focus of supervisory examinations; (4) eliminated
duplicative examinations; (5) revised reporting requirements for OREO and partially
charged-off loans and loans treated as in-substance foreclosures; (5) distinguished
between special mention (i.e., OAEM) credits and classified asset categories in
supervisory evaluations of banking organizations; and (6) re-emphasized to examiners
the contents of previous agency credit availability initiatives (AD 93-23).
6/10/93
Issued second interagency policy statement to announce additional credit availability
initiatives which: (1) provided additional guidance for the reporting of in-substance
foreclosures (collateral dependent real estate loan need not be reported as foreclosed
unless the lender has taken possession of the collateral, although appropriate losses must
be recognized); (2) revised non-accrual loan guidelines to return some non-accrual loans
to accrual status; (3) provided guidance for regulatory reporting sales of OREO;
(4) reaffirmed November 1991 guidelines to ensure that examiners are reviewing
commercial real estate loans in a consistent, prudent, and balanced manner; (5) developed
a common definition for "Special Mention" assets that separates these loans from loans

-9warranting adverse classification; (6) issued guidelines to coordinate supervision and
examination of bank holding companies, banks, and thrifts, in order to minimize the
disruptions and burdens associated with the examination process (AD 93-30).
Established Uniform Real Estate Lending Rule

1/11/93

Adopted, with the other federal banking agencies, a uniform rule on real estate lending
by insured depository institutions. The rule (1) requires each insured depository
institution to adopt and maintain comprehensive written real estate lending policies that
are consistent with safe and sound banking practices; (2) requires banks to establish
their own internal loan-to-value limits for real estate loans which should be applied to
the underlying property that is collateral for the loan; and (3) allows banks to be
exempt from supervisory loan-to-value limits if they renew, refinance, or restructure
loans without receiving additional funds (applicable to loans refinanced after 3/19/93)
(SR 93-1).

Actions Taken Pursuant to the Truth in Lending Act
Eliminated Impediment to Certain Home Equity Loans

7/92

Issued revised home equity disclosures and created exception to home equity rules
under Regulation Z to eliminate conflict between those rules and laws dealing with
loans to executive officers of banks. See 12 C.F.R. 226.5b(f)(2)(iv).
Clarified and Updated Regulatory Requirements

3/95

Published periodic updates to the official staff commentary to Regulation Z to facilitate
compliance by answering questions and addressing issues raised by covered institutions,
including addressing some of the legal uncertainties (following the Rodash decision)
surrounding the treatment of various fees and taxes associated with real estate secured
loans. See 60 Federal Register 16,771 (1995).

Actions Taken Pursuant to the Equal Credit Opportunity Act
Facilitated Appraisal Reporting Requirements

12/93

In implementing new rules on consumer rights to appraisal reports under Regulation B,
provided a sample notification form for use by creditors that do not choose to
automatically provide a copy of the report. See 12 C.F.R. 202, Appendix C.

-10-

Actions Taken Pursuant to the Electronic Fund Transfer Act
Conducted Zero-Based Regulatory Review

2/94

Under the Board's policy calling for periodic review of all regulations, proposed
revisions to Regulation E to simplify requirements and delete obsolete provisions.
See 59 Federal Register 10,684 (1994); 12 C.F.R. 205.
Eliminated Documentation Requirement

3/95

Eliminated requirement under Regulation E that electronic terminal receipts disclose a
unique identifier of a consumer's account, thereby enabling institutions to truncate
account numbers and thwart ATM fraud. See 60 Federal Register 15,032 (1995);
12 C.F.R. 205.9(a)(4).

Actions Taken Pursuant to the
Depository Institutions Management Interlocks Act
Clarified Prior Approval Requirements

11/18/92

Clarified that depository organizations seeking exceptions from the Depository
Institutions Management Interlocks Act are required to seek approval for an exception
only from the primary regulator of the organization in need of management assistance.
See 12 C.F.R. 212.4.

Other Statutes/Provisions
Modified Permissible Activities of Foreign Branches of U.S. Banks

9/4/92

Relaxed restrictions on the ability of foreign branches of U.S. banks to accept deposits
from U.S. residents at foreign branch locations (SR 94-49).
Reduced Loan Documentation Requirements

3/30/93

Reduced documentation requirements for loans to small- and medium-sized businesses
and small farms (AD 93-29).

-11-

Eliminated Prior Approval Requirement for Oakar Transactions

10/27/94

Eliminated requirement for prior Board approval of certain transactions by banks owned
by bank holding companies to acquire a thrift or thrift assets.
See 12 U.S.C. § 1815(d)(3)
Established an Internal Appeals Process

3/24/95

Established an internal appeals process for institutions wishing to appeal an adverse
material supervisory determination. See 60 Federal Register 16,470 (March 30, 1995).
Revised Certain Capital Requirements
1/14/92
Permitted bank holding companies to raise additional Tier 1 risk-based capital through
the sale of perpetual preferred stock; removed the 25 percent limit under the riskbased capital guidelines for counting for noncumulative perpetual preferred stock.
See 12 C.F.R. Part 208, Appendix A and Part 225, Appendix A.
12/23/92
Amended risk-based capital guidelines, lowering from 20 percent to 0 percent, certain
transactions collateralized by cash and OECD central government securities, including
U.S. Government agency securities, provided the transactions meet specified criteria.
12/92 (Issued 4/20/93)
Amended risk-based capital guidelines by lowering from 100 percent to 50 percent the
risk weight for loans for the construction of 1-4 family residential properties that have
been presold.
1/4/93
Amended capital guidelines to allow a higher percentage of certain identifiable
intangibles, purchased mortgage servicing rights (PMSRs) and purchased credit card
relationships (PCCRs), to be included in the Tier I capital calculation for risk-based
and leverage capital purposes.
2/1/95
Proposed amendments, pursuant to section 108 of the Riegle Community
Development and Regulatory Improvement Act of 1994, to the capital adequacy
guidelines to lower the capital requirement for small business loans and leases (on
personal property) that have been transferred with recourse by qualifying banking
organizations. Specifically, a banking organization need only include the amount of
retained recourse in its asset base, rather than the entire balance of the loans sold,
when calculating its capital ratios provided: (1) the transaction is treated as a sale
under generally accepted accounting principles (GAAP); (2) the bank establishes a
non-capital reserve sufficient to meet its estimated liability under the recourse

-12-

arrangement; and (3) the aggregate amount of recourse does not exceed 15 percent of
the bank's total risk-based capital or a greater amount established by the Board.

Applications Procedures Generally
Delegated More Authority to the Reserve Banks to Process Applications

8/25/92

Expanded authority of Reserve Banks to process all delegable bank and nonbank
applications without Board review. See 12 C.F.R. 265.11.
Reduced Public Notice Requirements

9/4/92

Reduced the newspaper publication requirements for applications involving
membership in the Federal Reserve System, establishment of branches of state
member banks, bank holding company formations, and the acquisition of a bank by a
bank holding company. See 12 C.F.R. 225.14(b)(3) and 262.3(b).

BOARD

OF G O V E R N O R S
• F THE

FEDERAL RESERVE SYSTEM
W A S H I N G T O N , • . C. 2 0 5 5 1

ALAN GREENSPAN
CHAIRMAN

April 27, 1995

The Honorable Richard C. Shelby
Chairman
Subcommittee on Financial Institutions and
Regulatory Relief
Committee on Banking, Housing, and Urban Affairs
United States Senate
Washington, D.C. 20510-6075
Dear Mr. Chairman:
Thank you for your letter of April 24 inviting the Federal Reserve to testify
before the Subcommittee on Financial Institutions and Regulatory Relief in connection
with the Subcommittee's consideration of S.650, "the Economic Growth and Regulatory
Paperwork Reduction Act of 1995."
I am pleased to inform you that Governor Susan Phillips will testify for the
Board on May 2 at 10:00 a.m.
Sincerely,

(Signed) Alan Greenspan

WHambley:rbw (G-66, 95-1484,1485)
bcc: G. Baer
A. Nielsen (2)
L. Leonard
ForBw

R Watson

q.4/24/95

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H O W A R D A. M E N E L L , S T A M DIRECTOR
R O S F A T J O f U F F R A , Jk.. CHIEF C O U N S E L
PHILIP T ftCCIfTEL. D E P U T Y JTAFF DIRECTOR
S T f V C N D. H A R R I S , D E M O C R A T I C STAJT On'tfeCfOR

Bmrcd States Senate
COMMITTEE ON BANKING. HOUSING, A N D
URBAN AFFAIRS
WASHINGTON. DC 20510-6076

April 24, 1995
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The T
Honorable
Alan
Greenspan
Chairman
Federal Reserve Board
20th Street and Constitution Avenue, N.W.
Washington, D.C. 20551

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Dear Chairman Greenspan:
We hereby request that you testify before the Subcommittee on
Financial Institutions and Regulatory Relief on May 2nd at 10:00 a.m., in
connection with the Subcommittee's consideration of S. 650, "the Economic
Growth and Regulatory Paperwork Reduction Act of 1995."
Specifically, the Subcommittee seeks your agency's comments on those
provisions of S. 650 that affect existing laws within your agency's
rulemaking or enforcement authority.
Your testimony should include any technical or substantive comments
that your agency may have on the bill's provisions, including comments on
those provisions that may already be the subject of regulatory action or
rulemaking. In addition, the Subcommittee seeks your testimony on any
safety and soundness concerns raised by S. 650.
The Subcommittee would also welcome any additional proposals or

alternative approaches that your agency may want to offer that would
reduce regulatory burden on banks and/or promote credit availability.
Under the Committee's rules, you should submit 120 copies of your
statement no later than 24 hours in advance of the hearing. Your statement
for the record may be of whatever length you believe appropriate, but should
be accompanied by a brief written summary. Early submission of your
statement and summary will allow Members of the Subcommittee and staff
to prepare for the hearing. Statements should be delivered to the
Committee in Room 534 of the Dirksen Senate Office Building, Washington,
D.C. 20510.

04/24/95

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2
The Honorable Alan Greenspan
April 24, 1995

Thank you for your cooperation and assistance. If you have any
questions regarding this hearing, please have your staff contact Kathy
Casey at 224-3227.
Sincerely,

Richard C. Shelby

® 003