Why? [29 FR 12361, Aug. 28, 1964. Sonoco Products Cos stock is up 3.4% in 2022, down 2% in the previous five trading days and down 1.02% in the past year. (3) However, although it is not a bank service corporation, the corporation in question and each of the banks for which it performs bank services are subject to section 5 of the Bank Service Corporation Act. (b) Earlier notification that an election is effective. Furthermore, the offering of accounts with transaction capability requires different expertise and systems than non-transaction deposit-taking and represented a distinct new activity that traditionally separated banks from thrift and similar institutions. (2) Extension of time for executing agreement. 1842), unless the Board notifies the company at any time prior to consummation of the proposal and that: (i) Any depository institution that would be controlled by the company on consummation of the proposal will not be both well capitalized and well managed on the date of consummation; or. (iii) Support for this view may also be found in the House Banking Committee report on proposed legislation prior to CEBA that contained a similar prohibition on new activities for nonbank banks. (d) The Board intends that a bank holding company may exercise all functions that are permitted to be exercised by an investment adviser under the Investment Company Act of 1940, except to the extent limited by the Glass-Steagall Act provisions, as described, in part, hereinafter. Such a notification must be in writing. 1843(k)(4)(I)), the financial holding company acquires more than 5 percent of the shares, assets, or ownership interests of any company at a total cost that exceeds the lesser of 5 percent of the financial holding company's Tier 1 capital or $200 million; or. However, the Board believes that not every kind of indebtedness was within the contemplation of the Congress when section 2(g)(3) was adopted. An effective election to become a financial holding company does not in any way limit the Board's statutory authority under the BHC Act, the Federal Deposit Insurance Act, or any other Redesignated at 36 FR 21666, Nov. 12, 1971]. Thus, an affiliate that was not engaged in cross-marketing products or services as of the grandfather date may not commence these activities under the exemption even if such activities were being conducted by another affiliate. It facilitates and provides an entry point for applicants before they are allowed to conduct business as a financial institution. Activities of a company authorized on the basis of section 4(c)(8) either before the 1970 Amendments or pursuant to the amended 225.4(a) may be shifted in a corporate reorganization to another company within the holding company system without complying with the procedures of 225.4(b), as long as all the activities of such company are permissible under one of the exemptions in section 4 of the Act. [37 FR 11316, June 7, 1972; 37 FR 13336, July 7, 1972, as amended at Reg. Bank holding company's subsidiary banks owning shares of nonbanking companies. The situation clearly is unaffected by section 2(b) of the Act which permits a corporation that fell within the definition initially to continue to function as a bank service corporation although subsequently only one of the banks remains as a stockholder in the corporation. The presumption of continued control would, of course, attach to any shares transferred to officers and directors of the divesting company, whether by spinoff or outright sale. Corporation Y made collections of delinquent paper or delinquent installments, which sometimes involved repossession and resale of the automobile or other property which secured the paper. In appropriate cases a company subject to a divestiture requirement may be required to place the assets subject to divestiture with an independent trustee under instructions to accomplish a sale by a specified date, by public auction if necessary. (f) Federal Reserve Bank notification. Y, 62 FR 9343, Feb. 28, 1997]. (c) On the other hand, the exercise by a bank holding company of the right to subscribe to an issue of additional stock of a bank could result in an increase in the holding company's proportional interest in the bank. (d) Although a bank holding company providing management consulting advice is prohibited by the regulation from owning or controlling, directly or indirectly, any equity securities in a client bank, this limitation does not apply to shares of a client bank acquired, directly or indirectly, as a result of a default on a debt previously contracted. [Reg. (b) It is understood that a nonbanking subsidiary of the holding company engages in writing comprehensive automobile insurance (fire, theft, and collision) which is sold only to customers of a subsidiary bank of the holding company in connection with the bank's retail installment loans; that when payment is made on a loan secured by a lien on a motor vehicle, renewal policies are not issued by the insurance company; and that the insurance company receives the usual agency commissions on all comprehensive automobile insurance written for customers of the bank. Bank holding companies should furnish written notification to their District Federal Reserve Bank within 10 days after financial contract activities are begun by the parent or a nonbank subsidiary. 225.107 Acquisition of stock in small business investment company. (1) In general. Companies holding real estate for this extended period are expected to make active efforts to dispose of it, and should keep the Reserve Bank advised on a regular basis concerning their ongoing efforts. 1843), a bank holding company is generally prohibited from acquiring direct or indirect ownership of stock of nonbanking corporations. (6) Presumptions of control. The official, published CFR, is updated annually and available below under Electronic Code of Federal Regulations (e-CFR), SUBCHAPTER A - BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM, PART 225 - BANK HOLDING COMPANIES AND CHANGE IN BANK CONTROL (REGULATION Y). A request by a company for additional time must include an explanation of why an extension is necessary. [12] In this regard, the Supreme Court in United States v. Philadelphia National Bank, noted that the principal banking products are of course various types of credit, for example: unsecured personal and business loans, mortgage loans, loans secured by securities or accounts receivable, automobile installment and consumer goods, installment loans, tuition financing, bank credit cards, revolving credit funds. 374 U.S. 321, 326 n.5 (1963). After a financial holding company provides the appropriate Reserve Bank with notice that the company is engaged in an activity listed in 225.86, a financial holding company may, unless otherwise notified by the Board, commence the activity de novo through any subsidiary that the financial holding company is authorized to control without providing additional notice under paragraph (a) of this section. The second part exempts the ownership of securities of an investment company which is not a bank holding company and is not engaged in any business other than investing in securities, provided the securities held by the investment company meet the 5 percent tests mentioned above. A bank holding company may also participate in other civic projects, such as a municipal parking facility sponsored by a local civic organization as a means to promote greater public use of the community's facilities. The Board's Regulation Y reflects this specialization, noting as examples of permissible lending activity: consumer finance, credit card and mortgage lending. Issuance and sale of short-term debt obligations by bank holding companies. Any other interpretation would lead to unwarranted results. Based upon these factors, the Board would view commercial lending as a separate and distinct activity for purposes of the activity limitation in section 4(f)(3). [32 FR 15004, Oct. 3, 1967, as amended at 35 FR 19662, Dec. 29, 1970. (a) Requests regarding activities that may be financial in nature or incidental to a financial activity. A company that is not a bank holding company and has applied for the Board's approval to become a bank holding company under section 3(a)(1) of the BHC Act (12 U.S.C. (4) The Board does not have sufficient information to assess whether the foreign bank or company making the election meets the requirements of this subpart. A financial holding company must provide notice to the Federal Reserve each time it engages in a new activity for the first time or acquires control of a nonbanking company. 225.133 Computation of amount invested in foreign corporations under general consent procedures. [6], [43 FR 6214, Feb. 14, 1978; 43 FR 15147, Apr. Under section 2(a) of the Bank Service Corporation Act, the amount of shares of a bank service corporation eligible for investment by a national bank may not exceed 10 per centum [of the bank's] * * * paid-in and unimpaired capital and unimpaired surplus. (f) In the Board's opinion, the Glass-Steagall Act provisions, as interpreted by the U.S. Supreme Court, forbid a bank holding company to sponsor, organize, or control a mutual fund. Any activity defined to be financial in nature under sections 4(k)(4)(A) through (E), (H) and (I) of the BHC Act (12 U.S.C. (4) Notice of large merchant banking or insurance company investments. Activities not closely related to banking. (ii) Any insured depository institution that would be controlled by the company on consummation of the proposal has not achieved at least a rating of satisfactory record of meeting community credit needs under the Community Reinvestment Act at the institution's most recent examination. A company becomes aware that a depository institution it controls is no longer well capitalized upon the occurrence of any material event that would change the category assigned to the institution for purposes of section 38 of the Federal Deposit Insurance Act (12 U.S.C. This web site is designed for the current versions of Reg. (3) Request becomes a declaration and an effective election on date of consummation of bank holding company proposal. The joint bank policy statements of March 12, 1980 include accounting guidelines for banks that engage in financial contract activities. (6) Finally, investors wish to reserve the right to sell their options, warrants or rights to a person of their choice to prevent being locked into what may become an unwanted investment. (4) Except for the differences in the percentage figures, the investment limitation in section 302(b) of the Small Business Investment Act is essentially the same as the investment limitation in section 2(a) of the Bank Service Corporation Act since, as an accounting matter and for the purposes under consideration, capital and surplus may be regarded as equivalent in meaning to paid-in and unimpaired capital and unimpaired surplus. Accordingly, the maximum permissible investment by a bank holding company system in the stock of a bank service corporation should be determined in accordance with the formula prescribed in 222.111. The approval-in-principle by the regulators is meant for the formal process of the reorganisation of the Bank to a financial holding company, which will be implemented by (ii) Any insured depository institution that would be controlled by the company on consummation of the proposal has not achieved at least a rating of satisfactory record of meeting community credit needs under the Community Reinvestment Act at the institution's most recent examination. [11] During the Senate debates on CEBA, Senator Proxmire in response to a statement from Senator Cranston that the joint-marketing restrictions do not lock into place the specific terms or conditions of the particular grandfathered product or service, stated: That is correct. In order to determine the company's exposure, all open positions should be reviewed and market values determined at least monthly, or more often, depending on volume and magnitude of positions. 225.130 Issuance and sale of short-term debt obligations by bank holding companies. From a financial point of view, it is usually possible to obtain control of another company with less investment than would be required in a merger or consolidation. (2) In intrastate situations, the Board may approve bank holding company acquisitions of additional banking subsidiaries. It is proposed that, in each instance where a subsidiary bank undertakes to provide such services, the bank will enter into a contract directly with the customer and then arrange to have the service company perform the services for it, the bank. These examples are not exclusive. 13, 1957. 1842(a)(1)) may as part of that application submit a request to become a financial holding company. A bank holding company will qualify as an FHC once its banking See 12 U.S.C. This is the same manner in which the Board has interpreted the term activity in the nonbanking provision of section 4 as referring to generic categories of activities, not to discrete products and services. What are the consequences of a foreign bank failing to continue to meet applicable capital and management requirements? (h) Under section 20 of the Glass-Steagall Act, a member bank is prohibited from being affiliated with a company that directly, or through a subsidiary, engages principally in the issue, flotation, underwriting, public sale, or distribution of securities. The Reserve Bank will monitor the efforts of the company to effect an orderly divestiture, and may order divestiture before the end of the five-year period if supervisory concerns warrant such action. (2) Earlier notification that an election is effective. (a) Bank management consulting advice. The following are examples of the services that may be provided by a finder when done in accordance with paragraphs (d)(1)(iii) and (iv) of this section. (e) Section 6(a)(1) of the Act makes it unlawful for a bank to invest any of its funds in the capital stock of any other subsidiary of the bank holding company. Y, 66 FR 415, Jan. 3, 2001, unless otherwise noted. (b) Cases in which notice to the Board is not required -. For example, where officers and directors of a one-bank holding company receive in the aggregate 25 percent or more of the stock of a bank subsidiary being divested by the holding company, the holding company would be presumed to continue to control the divested bank. What are the consequences of failing to maintain a satisfactory or better rating under the Community Reinvestment Act at all insured depository institution subsidiaries? Y, 57 FR 28779, June 29, 1992]. Thus, so far as Federal Banking law applicable to State member banks is concerned, the answer to the foregoing question depends on the provisions of section 23A of the Federal Reserve Act, as amended by the 1966 amendments to the Bank Holding Company Act. Res. (ii) What are some examples of finder services? Under 225.4(g) of Regulation Y, foreign bank holding companies are exempt from the prohibitions of section 4 of the Act with respect to their activities outside the United States; thus foreign bank holding companies may underwrite or deal in shares of stock (including shares of United States issuers) to be distributed outside the United States, provided that shares so acquired are disposed of within a reasonable time. (b) Establishment of prudent written policies, appropriate limitations and internal controls and audit programs. The Board believes that such agreements will not be consistent with the Act unless provisions are included that will preserve management's discretion over the policies and decisions of the acquiree and avoid control of voting shares. (1) Securities underwriting and dealing, (2) insurance agency and underwriting activites, and (3) merchant banking What activites can Financial Holding Company engage in? In other circumstances, however, less stringent conditions may be appropriate. (b) Contents of 225.101 Bank holding company's subsidiary banks owning shares of nonbanking companies. Thus, a nonbank bank is not engaged in an activity as of March 5, 1987, if the product or service in question was in a planning state as of that date and had not been offered or delivered to a customer. (b) The Board understood from the facts presented that the service company owns a computer which it utilizes to furnish data processing services for the subsidiary banks of its parent holding company. (b) Notification by a financial holding company required -. 225.81 What is a financial holding company? (D) A finder may not engage in any activity that would require the company to register or obtain a license as a real estate agent or broker under applicable law. the hierarchy of the document. The Reserve Banks have a responsibility for supervising and enforcing divestitures. In the future, Federal Register notice of section 2(g)(3) applications will be published only in cases in which the Board's General Counsel, acting under delegated authority, has determined not to grant such an application and has referred the matter to the Board for decision. (d) However, the Board does not believe that such conclusion prejudices consideration of the question whether such a company is within the section 4(c)(1)(C) servicing exemption. To the extent that a bank owned by a bank holding company engages in providing advisory or brokerage services to bank customers in connection with an investment company advised by the bank holding company or a nonbank affiliate, but is not required by the bank's primary regulator to make disclosures comparable to the disclosures required to be made by bank holding companies providing such services, the bank holding company should require its subsidiary bank to make the disclosures required in this paragraph to be made by a bank holding company that provides such advisory or brokerage services. But for the most part, holding companies simply own controlling stakes in their subsidiaries. (f) Accordingly, it is the Board's view that the insurance company could not be regarded as qualifying as a company engaged solely in the business of furnishing services to or performing services for the bank holding company or banks with respect to which the latter is a bank holding company. (c) It has been requested that the Board issue an interpretation that section 4(c)(6) of the Act provides an exemption under which participating bank holding companies may acquire such interests in the company without prior approval of the Board. (2) Assessment of consolidated supervision. Redesignated at 36 FR 21666, Nov. 12, 1971]. An agreement required by paragraph (c)(1) of this section to correct a capital or management deficiency must: (i) Explain the specific actions that the company will take to correct all areas of noncompliance; (ii) Provide a schedule within which each action will be taken; (iii) Provide any other information that the Board may require; and. Advertisers and sponsors are not responsible for site content. Courier services performed on behalf of an affiliate's customer (such as the carriage of incoming cash letters) shall be paid for by the customer. (2) The transaction involves the acquisition of less than substantially all of the assets of a company, or a subsidiary, division, department or office thereof, the operations of which are being terminated or substantially discontinued by the seller, but such asset acquisition is significant in relation to the size of the same line of nonbank activity of the holding company (e.g., consumer finance mortgage banking, data processing). 5, 1974; 39 FR 21120, June 19, 1974]. [1] It should be noted that every Board Order granting approval under section 4(c)(8) of the Act contains the following paragraph: This determination is subject . (a) The Board of Governors recently considered whether a bank holding may acquire, either directly or through a subsidiary, the stock of a so-called mortgage company that would be operated on the following basis: The company would solicit mortgage loans on behalf of a bank in the holding company system, assemble credit information, make property inspections and appraisals, and secure title information. Such a construction would allow a group of 20 bank holding companies - or even a single bank holding company and one or more nonbank companies - to engage in entrepreneurial joint ventures in businesses prohibited to bank holding companies, a result the Board believes to be contrary to the intent of Congress. Essentially, as in the scope of the term product or service, the guiding principle of Congressional intent with respect to this term is to permit only the continuation of the specific types of cross-marketing activity that were undertaken as of March 5, 1987. (3) projects designed explicitly to create improved job opportunities for low- or moderate-income groups (for example, minority equity investments, on a temporary basis, in small or medium-sized locally-controlled businesses in low-income urban or other economically depressed areas). Such divestiture must be done in accordance with the terms and conditions established by the Board. 1843(k)(4)(I)), if the financial holding company previously has notified the Board under paragraph (a) of this section that the company has commenced the relevant securities, merchant banking, or insurance company investment activities, as relevant. Modifications that alter the type of product, however, are not permitted. 3 (1985) (the activities limitation is to prevent an institution engaged in a limited range of functions from expanding into new areas and becoming, in essence, a full-service bank); 133 Cong. However, if the second category - managing or controlling banks - were interpreted to permit the holding company to perform services for any bank, including a bank in which it held less than 25 percent of the stock (or no stock whatsoever), the last clause of section 4(a)(2) would be meaningless. In order to be engaged in an activity, a nonbank bank must demonstrate that it had a program in place to provide a particular product or service included within the grandfathered activity to a customer and that it was in fact offering the product or service to customers as of March 5, 1987. Accordingly, entry of holding companies into courier activities on the basis of section 4(c)(8) will be conditioned as follows: 1. (c) While the above represents the Board's conclusion with respect to the particular escrow arrangement involved in the proposal presented, the Board does not believe that the use of an escrow arrangement would always result in a violation of the Act. (e) Factors used in the Board's determination regarding comparability of capital and management -. (ii) Other lending. Normally, a request for an extension will not be considered unless the company has established that it has made substantial and continued good faith efforts to accomplish the divestiture within the prescribed period. Such divestiture requirements may arise in a number of ways. John, a recent college graduate, is buying his first house. (a) Introduction. (f) A company is indirectly engaged in activities in the United States if any of its subsidiaries (whether or not incorporated under the laws of this country) is engaged in such activities. Nomenclature changes to part 225 appear at 69 FR 77618, Dec. 28, 2004. The Board's views on some questions that have arisen in connection with the meaning of terms used in 225.4(g) are set forth in paragraphs (b) through (g) of this section. 225.83 What are the consequences of failing to continue to meet applicable capital and management requirements? 225.103 Bank holding company acquiring stock by dividends, stock splits or exercise of rights. (2) It is not necessary for a bank holding company to perform all such functions in order to engage effectively in the described activity. (2) Thus, Congress explicitly recognized in the statute itself that nonbanking companies controlling grandfathered nonbank banks, which include the many of the nation's largest commercial and financial organizations, were being accorded a significant competitive advantage that could not be matched by bank holding companies because of the general prohibition against nonbanking activities in section 4 of the BHC Act. (ii) The financial holding company reduces its ownership in the fund, if any, to less than 25 percent of the equity of the fund within one year of sponsoring the fund or such additional period as the Board permits. In this regard, companies are requested to notify the Board of the terms of such proposed merger or asset acquisition agreements or nonvoting equity investments prior to their execution or consummation. A company subject to a divestiture requirement should generally be required to submit regular periodic reports detailing the steps it has taken to effect divestiture. Subscribe to: Changes in Title 12 :: Chapter II :: Subchapter A :: Part 225 :: Subpart I. Learn about our FREE and Premium Newsletters and Briefings. The notice There are two main ways through which corporations can become holding companies. A divestiture plan should be as specific as possible, and should indicate the manner in which divestiture will be accomplished - for example, by a bulk sale of the assets to a third party, by spinoff or distribution of shares to the shareholders of the divesting company, or by termination of prohibited activities. The Board's decisions under section 4 of the BHC Act have not generally differentiated between types of commercial lending, and thus the Board would view commercial lending as a single activity for purposes of CEBA. (a) Filing requirement. The Office of the Federal Register publishes documents on behalf of Federal agencies but does not have any authority over their programs. In addition, the reports should indicate whether the company has employed brokers, investment bankers or others to assist in the divestiture, or its reasons for not doing so, and should describe other efforts by the company to seek out possible purchasers. (1) Divestiture of depository institutions. [1] Certain of these limitations are codified in section 4(f)(3) of the BHC Act and generally restrict nonbank banks from commencing new activities or certain cross-marketing activities with affiliates after March 5, 1987, or permitting overdrafts for affiliates or incurring overdrafts on behalf of affiliates at a Federal Reserve Bank. (4) Trust activities. Thus, for example, the Act treats the sale of credit-related life, accident and health insurance as a separate activity from general insurance agency activities. [25 FR 281, Jan. 14, 1960. Earlier notification that an election is effective. (2) Acquisitions by a financial holding company of a company engaged in other permissible activities. What are the requirements for a foreign bank to be treated as a financial holding company? (b) Requirements to be a financial holding company. (12 U.S.C. (1) Avoidance of delays in divestitures. A notice under paragraph (a) of this section is not required in connection with the acquisition of shares of a company if, following the acquisition, the financial holding company does not control the company. Under the Act, a bank is a subsidiary of a bank holding company if: (i) The company directly or indirectly owns, controls, or holds with power to vote 25 per cent or more of the voting shares of the bank; (ii) The company controls in any manner the election of a majority of the board of directors of the bank; or. (5) Certify that each depository institution controlled by the company is well managed as of the date the company submits its declaration. (4) What information must the request contain? 225.137 Acquisitions of shares pursuant to section 4(c)(6) of the Bank Holding Company Act. Thus, delay in planning for divestiture may increase the likelihood that the company will seek an extension of the time for divestiture if difficulty is encountered in securing a purchaser, and in certain situations, of course, the Board may be without statutory authority to grant extensions. (6) Meaning of offer or market. The Board may, as appropriate and after consultation with the Secretary, publish a description of the proposal in the Federal Register with a request for public comment. In addition, this section of the Act provides that a bank holding company may not, without the Board's prior approval, acquire control of a bank: That is, in the words of the statute, for any action to be taken that causes a bank to become a subsidiary of a bank holding company. (12 U.S.C. (C) The company conforms, terminates, or divests, within 2 years of the date the financial holding company acquires shares or control of the company, all activities that are not financial in nature, incidental to a financial activity, or otherwise permissible for the financial holding company under section 4(c) (12 U.S.C. Moreover, the exercise of such rights would cause the assets of the issuing company to be increased and in a sense, therefore, the size or extent of the bank holding company system would be expanded. 1843(f)(3). In addition, because some prospective purchasers may themselves require regulatory approval to acquire the divested property, delay by the divesting company may - by leaving insufficient time to obtain such approvals - have the effect of narrowing the range of prospective purchases. (c) Board procedures for reviewing requests -. 42(c)(2)); (5) Invest in, provide financing to, develop, rehabilitate, manage, sell, and rent nonresidential real property or other assets located in a low- or moderate-income area provided the property is used primarily for low- and moderate-income persons; (6) Invest in and provide financing to one or more small businesses located in a low- or moderate-income area to stimulate economic development; (7) Invest in, provide financing to, develop, and otherwise assist job training or placement facilities or programs designed primarily for low- and moderate-income persons; (8) Invest in and provide financing to an entity located in a low- or moderate-income area if that entity creates long-term employment opportunities, a majority of which (based on full time equivalent positions) will be held by low- and moderate-income persons; and. (ii) Certify that each depository institution that would be controlled by the company on consummation of its proposal to become a bank holding company will be both well capitalized and well managed as of the date the company consummates the proposal. In determining whether an activity in which a bank could itself engage is within the servicing exemption, the question is simply whether such activity may appropriately be considered as furnishing services to or performing services for a bank. Section 5136 of the Revised Statutes (paragraph Seventh) in turn provides, in part, as follows: Except as hereinafter provided or otherwise permitted by law nothing herein contained shall authorize the purchase by the association for its own account of any shares of stock of any corporation. (e) Consequences of failure to correct conditions within 180 days -. site when drafting amendatory language for Federal regulations: (1) In general. (iv) Provisions that make acquisition of the acquiree or its subsidiary bank(s) by a third party either impossible or economically impracticable. Please help us keep BankersOnline FREE to all banking professionals. In supervising the activities of bank holding companies, the Board has adopted and continues to follow the principle that bank holding companies should serve as a source of strength for their subsidiary banks. Such a company is treated as a bank holding company, however, for purposes of the anti-tying provisions in section 106 of the BHC Act Amendments of 1970 (12 U.S.C. Within the divestiture period it is expected that the company will make good faith efforts to dispose of dpc shares or assets at the earliest practicable date. In addition, the escrow agreement provided that, while the shares were held in escrow, the applicant could not exercise voting or any other ownership rights with respect to those shares. For example, a nonbank bank marketing a three-year, $5,000 certificate of deposit through an affiliate under the exemption could offer a one-year $2,000 certificate of deposit with a different interest rate after the grandfather date. (e) Eligibility for grandfathered nonbank bank status. An election to be treated as a financial holding company shall not be effective if, during the period provided in paragraph (a) of this section, the Board finds that: (1) The foreign bank certificant, or any foreign bank that operates a branch or agency or owns or controls a commercial lending company in the United States and is controlled by a foreign bank or company certificant, is not both well capitalized and well managed; (2) Any U.S. insured depository institution subsidiary of the foreign bank or company (except an institution excluded under paragraph (d) of this section) or any U.S. branch of a foreign bank that is insured by the Federal Deposit Insurance Corporation has not achieved at least a rating of satisfactory record of meeting community needs under the Community Reinvestment Act at the institution's most recent examination; (3) Any U.S. depository institution subsidiary of the foreign bank or company is not both well capitalized and well managed; or. From training, policies, forms, and publications, to office products and occasional gifts, its available here: BOL Learning Connect offers more than 200 courses ON-DEMAND or on CD ROM from AML to Reg Z and every topic in between. Pursuant to section 302(b) of the Small Business Investment Act of 1958 (15 U.S.C. (c) Under what circumstances will the Board find an election to be ineffective? (2) as comprised within the concept of such incidental powers as shall be necessary to carry on the business of banking referred to in the first sentence of said paragraph Seventh. If Congress had meant the term to refer to just these two activities, it would have used the restriction it used in another section of CEBA dealing with nonbank banks owned by bank holding companies which has this result, i.e., the nonbank bank could not engage in any activity that would have caused it to become a bank under the prior bank definition in the Act. (c) Under 225.4(a)(5), as amended, bank holding companies (which term, as used herein, includes both their bank and nonbank subsidiaries) may, in accordance with the provisions of 225.4 (b), act as investment advisers to various types of investment companies, such as open-end investment companies (commonly referred to as mutual funds) and closed-end investment companies. For these reasons, there can be no fixed rule as to the type of divestiture that will be appropriate in all situations. 2. shares held by a banking subsidiary of a bank holding company which meet such conditions are not subject to the two-year disposition requirement prescribed by section 4(c)(2), although any such shares would, of course, continue to be subject to such requirement for disposition as may be prescribed by provisions of any applicable banking laws or by the appropriate bank supervisory authorities. (1) At the outset, the Board notes that the scope and application of the Act's limitations on nonbank banks must be guided by the Congressional findings set out in section 4(f)(3) of the BHC Act. switch to drafting.ecfr.gov. Computer services for customers of subsidiary banks. The Board expects to review further developments in this area. Under section 4 of the Act, the Board has historically treated trust activities as a single activity and has not differentiated the function on the basis of whether the customer was an individual or a business. The approval-in-principle by the regulators is meant for the formal process of the The Board emphasized also that in respect to the service company's operations, there continues in effect the requirement under section 4(c)(1) that the service company engage solely in the business of furnishing services to or performing services for the bank holding company and its subsidiary banks. Based upon the guidance in the Act as to the degree of specificity required in applying the activity limitation with respect to lending, the Board believes that, in addition to commercial lending, there are three other types of lending activities: consumer mortgage lending, consumer credit card lending, and other consumer lending. An IPO could follow. (2) Earlier notification that an election is effective. (3) Provide information supporting the requested determination and any other information required by the Board concerning the proposed activity. 225.86 What activities are permissible for any financial holding company? View the most recent official publication: These links go to the official, published CFR, which is updated annually. Progress reports as well as divestiture plans should be afforded confidential treatment. (4) Product approach to cross-marketing restriction. 1843(c)) if: (A) The company to be acquired is substantially engaged in activities that are financial in nature, incidental to a financial activity, or otherwise permissible for the financial holding company under section 4(c) of the BHC Act (12 U.S.C. 1843(c)); (B) The financial holding company complies with the notice requirements of 225.87, if applicable; and. It is further understood that the insurance company engages in no other activity. There was some question as to whether or not some of the other activities of Corporation Y mentioned above could meet the test, but on balance, it seemed that all such activities probably were activities in which Holding Company B, which as already indicated was a bank, could itself engage, at the present locations of Corporation Y, without being engaged in the operation of bank branches at those locations. 1817(j)(13), 1818, 1828(o), 1831i, 1831p-1, 1843(c)(8), 1844(b), 1972(1), 3106, 3108, 3310, 3331-3351, 3906, 3907, and 3909; 15 U.S.C. (a) Questions have been presented to the Board of Governors regarding the applicability of the recently enacted Bank Service Corporation Act (Pub. (iii) The Board in the exercise of its supervisory authority notifies the financial holding company that a notice is necessary. (i) The cross-marketing restrictions would not limit the ability of the institution to change the specific terms and conditions of a particular grandfathered product or service. 225.131 Activities closely related to banking. (c) Section 4(c)(5) is divided into two parts. The question presented was whether such dpc assets could be held indefinitely by a bank holding company subsidiary as incidental to its permissible lending activity. (b) On the basis of the foregoing statutory provisions, it is the position of the Board that a bank holding company may acquire direct or indirect ownership or control of stock of an SBIC subject to the following limits: (1) The total direct and indirect investments of a bank holding company in stock of SBICs may not exceed: (i) With respect to all stock of SBICs owned or controlled directly or indirectly by a subsidiary bank, 5 percent of that bank's capital and surplus; (ii) With respect to all stock of SBICs owned directly by a bank holding company that is a bank, 5 percent of that bank's capital and surplus; and, (iii) With respect to all stock of SBICs otherwise owned or controlled directly or indirectly by a bank holding company, 5 percent of its proportionate interest in the capital and surplus of each subsidiary bank (that is, the holding company's percentage of that bank's stock times that bank's capital and surplus) less that bank's investment in stock of SBICs; and. In recommending the change, the Senate Banking and Currency Committee stated that the types of services contemplated are in the fields of advertising, public relations, developing new business, organizations, operations, preparing tax returns, personnel, and many others, which indicates that latitude should be given to the range of activities contemplated by this section beyond those specifically set forth in the early draft of the bill. The frequency of such reports may vary depending upon the nature of the divestiture and the period specified for divestiture. The presumption arises not only where the transferee or transferred company has an officer, director or trustee in common with the transferor, but where the transferee himself holds such a position with the transferor. (c) Duration of prohibitions. (c) Section 302(b) of the Small Business Investment Act authorizes national banks, as well as other member banks and nonmember insured banks to the extent permitted by applicable State law, to invest capital in small business investment companies not exceeding one percent of the capital and surplus of such banks. 225.115 Applicability of Bank Service Corporation Act in certain bank holding company situations. (See 1966 Federal Reserve Bulletin 1151; 12 CFR 208.119.) A separate drafting site However, where the acquiree is located outside the home state of the investing bank holding company, section 3(d) of the Act prevents the Board from approving any application that will permit a bank holding company to acquire, directly or indirectly, any voting shares of, interest in, or all or substantially all of the assets of any additional bank. (12 U.S.C. 225.145 Limitations established by the Competitive Equality Banking Act of 1987 on the activities and growth of nonbank banks. 8, 1976, as amended at 41 FR 12009, Mar. Any activity that the Board had determined by regulation in effect on November 11, 1999, to be usual in connection with the transaction of banking or other financial operations abroad (see 211.5(d) of this chapter), subject to the terms and conditions in part 211 and Board interpretations in effect on that date regarding the scope and conduct of the activity. (3) Conduct of certain investment activities. 225.82 How does a bank holding company elect to become a financial holding company? The Board or the appropriate Federal Reserve Bank may notify a foreign bank or company that its election to be treated as a financial holding company is effective prior to the 31st day after the election was filed with the appropriate Federal Reserve Bank. These disclosures may be made orally so long as written disclosure is provided to the customer immediately thereafter. In discussing the activity limitation, the report recognized a distinction between demand deposits and accounts with transaction capability and those without transaction capability: With respect to deposits, the Committee recognizes that it is legitimate for an institution currently involved in offering demand deposits or other third party transaction accounts to make use of new technologies that are in the process of replacing the existing check-based, paper payment system. In light of the experience indicating that the publication of Federal Register notice of such applications has not served a useful purpose, the Board has decided to alter its procedures in such cases. The prohibitions described in paragraph (a) of this section shall continue in effect until such time as each insured depository institution controlled by the financial holding company has achieved at least a rating of satisfactory record of meeting community credit needs under the Community Reinvestment Act at the most recent examination of the institution. A company that is not a bank holding company and has applied for the Boards approval to become a bank holding company under section 3(a)(1) of the BHC Act (12 U.S.C. (c) Section 4(c)(1) of the Act permits a holding company to own shares in any company engaged solely * * * in the business of furnishing services to or performing services for such holding company and banks with respect to which it is a bank holding company * * *. The Board has ruled heretofore that the term services as used in section 4(c)(1) is to be read as relating to those services (excluding closely related activities of a financial, fiduciary, or insurance nature within the meaning of section 4(c)(6)) which a bank itself can provide for its customers ( 225.104). The various warrants, options, and rights are not exercisable by the investing bank holding company unless interstate banking is permitted, but may be transferred by the investor either immediately or after the passage of a period of time or upon the occurrence of certain events. (2) Submissions and approval of divestiture plans. In taking any action under this section, the Board will consult with the relevant Federal and state regulatory authorities. It simply appoint the top management or advisory team to manage each company if necessary. A request submitted under this section must be in writing and must: (1) Identify and define the activity for which the determination is sought, specifically describing what the activity would involve and how the activity would be conducted; (2) Explain in detail why the activity should be considered financial in nature or incidental to a financial activity; and. (iii) The acquisition of more than 5 per cent of the voting shares of the acquiree that simultaneously with their acquisition by the investing company become nonvoting shares, remain nonvoting shares while held by the investor, and revert to voting shares when transferred to a third party. A financial holding company or other interested party may request a determination from the Board that an activity not listed in 225.86 is financial in nature or incidental to a financial activity. Thus, for example, if a holding company divests its banking interest under circumstances where the presumption of continued control arises, the divesting company must continue to consider itself bound by the Act until an appropriate order is entered by the Board dispelling the presumption. The termination of activities must be completed within the time period referred to in paragraph (e)(1) of this section and in accordance with the terms and conditions acceptable to the Board. 1843(k), (n) and (o)). Other investments primarily designed to promote community welfare are considered permissible, but have not been defined in order to provide bank holding companies flexibility in approaching community problems. Such divestiture must be done in accordance with the terms and conditions established by the Board. (7) Limitations on cross-marketing to in the same manner. (12 CFR 225.2(b)(4)). In this regard, the Board has previously recognized that this line of business constitutes a permissible but separate activity under section 4 of the BHC Act. In the circumstances, while the question was not free from doubt, the Board expressed the opinion that the activities of Corporation Y were those of a company engaged solely in the business of furnishing services to or performing services for Holding Company B within the meaning of section 4(c)(1) of the Act, and that, accordingly, the control by Holding Company B of shares in Corporation Y was exempted under that section. Thus, if a holding company may be deemed to be engaging in an activity through the medium of a company in which it owns less than 5 percent of the voting stock it may nevertheless require Board approval, despite the section 4(c)(6) exemption. 225.109 Services under section 4(c)(1) of Bank Holding Company Act. Redesignated at 36 FR 21666, Nov. 12, 1971 and amended at 40 FR 13477, Mar. 1843(k)(5)). (b) It was asked whether it makes any difference that the shares of Y Company are not owned directly by X Corporation but instead are owned through Subsidiaries A and B. X Corporation owns all the voting shares of Subsidiary A, which owns one-half of the voting shares of Subsidiary B. The Board's amendment of 225.4(a), which adds bank management consulting advice to the list of closely related activities, described in general terms the nature of such activity. March 27, 1987). Accordingly, the Board does not regard the presumption of section 2(g)(3) as applicable to the following categories of credit, provided the extensions of credit are not secured by the transferred property and are made in the ordinary course of business of the transferor (or its subsidiary) that is regularly engaged in the business of extending credit: (i) Consumer credit extended for personal or household use to an individual transferee; (ii) student loans made for the education of the individual transferee or a spouse or child of the transferee; (iii) a home mortgage loan made to an individual transferee for the purchase of a residence for the individual's personal use and secured by the residence; and. What are the required qualifications to become a Financial Holding Company (FHC)? Congress was aware that these nonbank banks had been acquired by companies that engage in a wide range of nonbanking activities, such as retailing and general securities activities that are forbidden to bank holding companies under section 4 of the BHC Act. Redesignated at 36 FR 21666, Nov. 12, 1971]. We list the typical professional and educational requirements for becoming a financial controller. (2) Extension of time for executing agreement. (d) Land development (see 1972 Fed. 27, 1975; 47 FR 37372, Aug. 26, 1982; 52 FR 45161, Nov. 25, 1987]. However, in view of potential conflicts of interests, a bank holding company which acts both as custodian and investment adviser for an investment company should exercise care to maintain at a minimal level demand deposit accounts of the investment company which are placed with a bank affiliate and should not invest cash funds of the investment company in time deposit accounts (including certificates of deposit) of any bank affiliate. 225.143 Policy statement on nonvoting equity investments by bank holding companies. The nonbank affiliate could not, however, begin to offer or market another product or service of the nonbank bank. (f) Consultation with other agencies. For example, these activities are, in many cases, conducted by specialized institutions, such as mortgage companies and credit card institutions, or through separate organizational structures within an institution, particularly in the case of mortgage lending. Conference Report at 126. (i) Well capitalized. Microsoft Edge, Google Chrome, Mozilla Firefox, or Safari. For example, it is entirely possible that a company could exercise a controlling influence over the management and policies of a second company, and thus control that company under the Act's definitions, even though it held less than 5 percent of the voting stock of the second company. (ii) The Board believes that the term product or service must be interpreted in light of its accepted ordinary commercial usage. (f) In this proposal, each of the participating stockholders must be viewed as engaging in the business of insurance underwriting. The purpose of requiring such reports is to insure that substantial and good faith efforts being made by the company to satisfy its divestiture obligations. If a company does not correct the conditions described in a notice under paragraph (a) of this section within 180 days of receipt of the notice or such additional time as the Board may permit, the Board may order the company to divest ownership or control of any depository institution owned or controlled by the company. (1) Notice to Board. Bank holding company acquiring stock by dividends, stock splits or exercise of rights. Sec. (2) The foreign bank, and any company that owns or controls the foreign bank, has made an effective election to be treated as a financial holding company under this subpart. A foreign bank that is a bank holding company and that operates a branch or agency or owns or controls a commercial lending company in the United States must comply with the requirements of this section, 225.82, and 225.90 through 225.92 in order to be a financial holding company. [5] In the case of a divestiture of nonbank shares, an application under section 2(g)(3) would be required whenever officers and directors of the divesting company received in the aggregate more than 5 percent of the shares of the company being divested. 225.124 Foreign bank holding companies. [6] H. Rep. No. In addition to being charged with the administration of the latter Act, the Board is named in the Bank Service Corporation Act as the Federal supervisory agency with respect to the performance of bank services for State member banks. Within 45 days after receiving a notice under paragraph (a) of this section, the foreign bank or company must execute an agreement acceptable to the Board to comply with all applicable capital and management requirements. . If the Board finds that a financial holding company controls any depository institution that is not well capitalized or well managed, the Board will notify the company in writing that it is not in compliance with the applicable requirement(s) for a financial holding company and identify the area(s) of noncompliance. The two exceptions principally involved in the question presented are with respect to (1) stock that is eligible for investment by a national bank (section 4(c)(5) of the Act) and (2) shares of a company furnishing services to or performing services for such bank holding company or its banking subsidiaries (section 4(c)(1)(C) of the Act). [Reg. For example, a nonbank bank that held an interest in a single real estate project would not thereby be engaged in real estate development for purposes of this provision, unless evidence was presented indicating the interest was held under a program to commence a real estate development business. Subsidiaries A and B each own one-third of the voting shares of Y Company. Holding company does not operate on its own. (a) Section 4(c)(1) of the Bank Holding Company Act, among other things, exempts from the nonbanking divestment requirements of section 4(a) of the Act shares of a company engaged solely in the business of furnishing services to or performing services for its bank holding company or subsidiary banks thereof. [22 FR 2533, Apr. Section 5136 provides, in part, that: Except as hereinafter provided or otherwise permitted by law, nothing herein contained shall authorize the purchase by the association for its own account of any shares of stock of any corporation. As the provisions of section 2(a) of the Bank Service Corporation Act and its legislative history make it clear that shares of a bank service corporation are of a kind eligible for investment by national banks under section 5136, it follows that the direct or indirect ownership on control of such shares by a bank holding company are permissible within the amount limitation discussed in paragraph (d) of this section. (e) Advisory opinions regarding scope of financial activities -. (2) Alternative method of complying with a divestiture order. (Secs. 225.85 Is notice to or approval from the Board required prior to engaging in a financial activity? See 12 CFR 225.25(b)(3). (c) In the Board's opinion, this exemption is as applicable to such shares when held by a banking subsidiary of a bank holding company as when held directly by the bank holding company itself. Bank holding company status would also bring with it accounting rule changes as well as direct regulation by the Fed. result, it may not include the most recent changes applied to the CFR. Accordingly, CEBA requires that the taking of demand deposits be treated as a separate activity. Such credit-related insurance placed with the company would be identified in the records of the company as having been originated by the respective stockholder. The Board believes that this application of section 2(a)(2)(A) of the Act is particularly appropriate on the facts presented here. be disposed of within two years after the date of their acquisition or the date of the Act, whichever is later. A holding company courier subsidiary established under section 4(c)(8) should be a separate, independent corporate entity, not merely a servicing arm of a bank. Accordingly, the ownership or control of such shares by the bank holding company would be exempt from the prohibitions of section 4 of the Bank Holding Company Act. Such notification must be in writing. Purchases by Corporation X consisted mainly of paper insured under title I of the National Housing Act and, in addition, Corporation X purchased time payment contracts covering sales of appliances by dealers under contractual arrangements with utilities, as well as paper covering home improvements which was not insured. Accordingly, it was the Board's view that Corporation X could not be regarded as qualifying under section 4 (c)(1) as a company engaged solely in the business of furnishing services to or performing services for Holding Company A or subsidiary banks thereof. This interpretation is intended to explain in greater detail certain of the terms in the amendment. Why have a holding company? The Conference Report indicates a legislative intent not to lock into place the specific terms or conditions of a grandfathered product or service. 1841(c)(2) (D), (F), (H), and (I). 225.94 What are the consequences of an insured branch or depository institution failing to maintain a satisfactory or better rating under the Community Reinvestment Act? 225.121 Acquisition of Edge corporation affiliate by State member banks of registered bank holding company. Some of the agreements reviewed appear consistent with the Act since they are limited to investments of relatively moderate size in nonvoting equity that may become voting equity only if interstate banking is authorized. Such a notification must be in writing. [23 FR 2675, May 23, 1958. A company proposing to: become a bank holding company, acquire a subsidiary bank, or acquire control of bank or bank holding company securities generally must apply for 1843(l)) and becomes an effective election for purposes of 225.81(b) on the date that the company lawfully consummates its proposal under section 3 of the BHC Act (12 U.S.C. - Board of Governors of the Federal Reserve System, - Bank Holding Companies and Change in Bank Control (Regulation Y), https://www.ecfr.gov/current/title-12/chapter-II/subchapter-A/part-225/subpart-I. A company will not be considered to be engaged in activities in the United States if its products are sold to independent importers, or are distributed through independent warehouses, that are not controlled or franchised by it. As such, the subsidiary should exist as a separate, profit-oriented operation and should not be subsidized by the holding company system. 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