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Inactive Financial Institution Letters 



[Federal Register: March 23, 2000 (Volume 65, Number 57)]
[Rules and Regulations]               
[Page 15526-15531]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr23mr00-3]                         

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FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Parts 303 and 362

RIN 3064-AC38

 
Activities and Investments of Insured State Banks

AGENCY: Federal Deposit Insurance Corporation (FDIC).

ACTION: Interim final rule; request for comment.

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SUMMARY: The FDIC is adopting a rule on an interim basis to implement 
certain provisions of the Gramm-Leach-Bliley Act. The interim final 
rule impacts the FDIC's rules and regulations governing activities and 
investments of insured state banks. Under the rule, FDIC insured state 
nonmember banks must file a notice before they may conduct activities 
as principal through a subsidiary that a national bank can conduct only 
in a financial subsidiary. State nonmember banks must comply with four 
requirements to carry out these activities. Also, state nonmember banks 
along with their insured depository institution affiliates must have 
received a rating of not less than satisfactory under the Community 
Reinvestment Act. Under the rule, the FDIC may impose standards and 
prudential safeguards to insulate the bank from liability for 
activities of the subsidiary.

DATES: The interim final rule is effective March 11, 2000. Comments 
must be received by May 22, 2000.

ADDRESSES: Send written comments to Robert E. Feldman, Executive 
Secretary, Attention: Comments/OES, Federal Deposit Insurance 
Corporation, 550 17th Street, N.W., Washington, D.C. 20429. Comments 
may be hand delivered to the guard station at the rear of the 17th 
Street Building (located on F Street), on business days between 7:00 
a.m. and 5:00 p.m. Fax number (202) 898-3838; Internet Address: 
comments @fdic.gov. Comments may be inspected and photocopied in the 
FDIC Public Information Center, Room 100, 801 17th Street, N.W., 
Washington, D.C. 20429, between 9:00 a.m. and 4:30 p.m. on business 
days.

FOR FURTHER INFORMATION CONTACT: Curtis Vaughn, Examination Specialist 
((202) 898-6759), Division of Supervision; Linda L. Stamp, Counsel 
((202) 898-7310) or Janet V. Norcom, Counsel ((202) 898-8886), Legal 
Division, FDIC, 550 17th Street, N.W., Washington, D.C. 20429.

[[Page 15527]]


SUPPLEMENTARY INFORMATION:

I. Financial Subsidiary Activities

    On November 12, 1999, President Clinton signed the Gramm-Leach-
Bliley Act (G-L-B Act) (Pub. L. 106-102) into law. Section 121(d) of 
the G-L-B Act amended the Federal Deposit Insurance Act (FDI Act) (12 
U.S.C. 1811 et seq.) by adding a new section 46 (12 U.S.C. 1831w). New 
section 46(a) of the FDI Act provides that an insured state bank may 
control or hold an interest in a subsidiary that engages as principal 
in activities that would be permissible for a national bank to conduct 
only through a "financial subsidiary," subject to certain conditions.
    A financial subsidiary is a new type of subsidiary for national 
banks, governed by new section 5136A of the Revised Statutes as created 
under section 121(a) of the G-L-B Act. Section 5136A permits a 
financial subsidiary to engage in specified, newly authorized 
activities that are financial in nature and in activities that are 
incidental to financial activities if the bank and the subsidiary meet 
certain requirements and comply with stated safeguards. A financial 
subsidiary also may combine these financial subsidiary activities with 
activities that are permissible for national banks to engage in 
directly. The financial subsidiary activities include many of the 
activities which are authorized for the new "financial holding 
companies" as laid out in new section 4(k) of the Bank Holding Company 
Act (BHCA) (12 U.S.C. 1841 et seq.) as created by section 103(a) of the 
G-L-B Act. Section 5136A also permits the Secretary of the Treasury (in 
consultation with the Board of Governors of the Federal Reserve System) 
to determine that additional activities are authorized for a financial 
subsidiary.
    A state bank seeking to engage as principal in a financial 
subsidiary activity under section 46(a) must comply with four 
conditions listed in section 46(a) itself. In addition, section 103(a) 
of the G-L-B Act added a new subsection (4)(l)(2) to the BHCA (12 
U.S.C. 1843(l)(2)), which contains a mandatory Community Reinvestment 
Act (CRA) (12 U.S.C. 2901 et seq.) requirement enforceable by the FDIC. 
This differs from the situation before enactment of the G-L-B Act, when 
some of these activities were impermissible for a national bank and the 
FDIC reviewed such activities under section 24 of the FDI Act (12 
U.S.C. 1831a) as implemented in part 362 of the FDIC's rules and 
regulations. Among other things, section 24 provides that a state bank 
subsidiary may not engage as principal in activities which are not 
permissible for a subsidiary of a national bank, unless the state bank 
meets its applicable capital requirements and the FDIC determines that 
the activity does not pose a significant risk to the appropriate 
deposit insurance fund.
    Certain activities which the FDIC has addressed under subpart A of 
part 362, such as general securities underwriting, are now authorized 
for a financial subsidiary of a national bank. This means such 
activities will now be analyzed under section 46(a), and the 
restrictions the FDIC previously outlined in subpart A of part 362 will 
not apply to new state bank subsidiaries (or to existing state bank 
subsidiaries engaging in new financial activities). Existing state bank 
subsidiaries are grandfathered by section 46(b). 12 U.S.C. 1831w(b).
    Where section 5136A of the Revised Statutes specifically prohibits 
financial subsidiaries from engaging in certain activities as 
principal, such as real estate development or investment, these 
activities are outside the scope of section 46(a) and will continue to 
be dealt with under section 24 and subpart A of part 362. Also, as the 
Secretary of the Treasury exercises his or her authority in the future 
to determine that additional activities are authorized for a financial 
subsidiary, such activities will cease being governed by section 24 or 
subpart A of part 362, and will begin being governed by section 46(a).

II. Status of Rulemakings Addressing State Bank Activities

    Among other things, subpart B of part 362 creates safety and 
soundness guidelines for an insured state nonmember bank subsidiary 
which engages in real estate investment activities that would be 
permissible for a subsidiary of a national bank but not permissible for 
a national bank directly. On December 1, 1998, the FDIC proposed an 
amendment to subpart B that would have added safety and soundness 
guidelines to govern an insured state nonmember bank subsidiary which 
engages in the public sale, distribution or underwriting of stocks, 
bonds, debentures, notes or other securities activity that would be 
permissible for a subsidiary of a national bank but not permissible for 
a national bank directly.\1\ These real estate and securities 
provisions were intended to address pending or approved applications 
under regulations issued by the Office of the Comptroller of the 
Currency (OCC) which permitted national banks to request OCC approval 
to engage in certain activities through subsidiaries, even though the 
activities were not permissible for the national bank itself.\2\ In an 
effort to be proactive in terms of future approvals of activities by 
the OCC under these regulations, the FDIC also sought comment on a 
requirement that a notice be filed with the FDIC before an insured 
state nonmember bank subsidiary engages in any other activity 
permissible for a subsidiary of a national bank that is not permissible 
for the parent national bank directly. Now that the OCC is proposing to 
eliminate its regulations and the 
G-L-B Act, through section 5136A and section 46(a), has established a 
new analytical framework, the FDIC will not be pursuing these 
amendments to subpart B.
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    \1\ 63 FR 66339 (December 1, 1998).
    \2\ Part 5 of the OCC's regulations governs operating 
subsidiaries. Section 5.34(f), which confirmed that there could be 
activities not permissible for a national bank itself that could be 
conducted by an operating subsidiary, has been superseded. The OCC 
is currently proposing to eliminate that section of its rule. 65 FR 
3157 (January 20, 2000).
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    The FDIC's December 1, 1998 proposal to amend subpart B also 
included a proposal to consolidate the remaining provisions of the 
FDIC's securities activities regulation, Sec. 337.4, into subpart B. In 
light of the changes made as a result of the G-L-B Act, these revisions 
will be technical in nature. The FDIC will deal with those aspects of 
its proposal when the FDIC finalizes the interim final rule adopted in 
this rulemaking, or at a later time.
    The interim final rule adopted in this rulemaking establishes 
conditions and procedures that apply when a subsidiary of a state 
nonmember bank seeks to engage as principal in financial activities as 
authorized under section 46(a). The interim rule contains a general 
provision advising state nonmember banks of the inapplicability of 
subpart A of part 362, but the FDIC has not published revised 
regulatory text modifying subpart A provisions addressing those 
financial activities which are now addressed by section 46(a). When the 
FDIC adopts a final version of the interim final rule proposed in this 
rulemaking, the FDIC will revise current subpart A of part 362 to 
modify treatment of those activities, such as securities underwriting, 
which will now be treated under section 46(a) rather than section 24 
and subpart A. Also, the real estate provisions of subpart B of part 
362 are no longer of any effect, and will be removed. The FDIC invites 
public comment on such revisions.

[[Page 15528]]

III. Description of the Interim Final Rule

    The implementation of section 46(a) is lodged in a new subpart E of 
part 362. Section 362.16 sets out the purpose and scope of the subpart, 
including the scope of the activities covered. Subpart E will apply to 
any "financial subsidiary activity," which is defined as an activity 
which has been authorized for a financial subsidiary of a national bank 
under section 5136A of the Revised Statutes and which may be conducted 
by a national bank only through a financial subsidiary. Similar to 
subpart A of part 362, the purpose and scope section also clarifies 
what is meant by "as principal" activities, and specifies that the 
financial subsidiary activity also must be in conformance with other 
applicable state and federal law.
    Sections 362.18(a)-(c) reiterate the four statutory conditions 
applicable to financial subsidiary activities under section 46(a) as 
well as the mandatory CRA requirement under section 4(l) of the BHCA. 
Section 362.18(a) also provides the FDIC with a mechanism which gives 
the FDIC an opportunity to impose safety and soundness constraints or 
prudential safeguards on insured state nonmember bank subsidiaries that 
engage in financial subsidiary activities as principal. If a bank 
meeting the statutory requirements chooses to engage in such activities, 
then the bank must file a notice with the FDIC 30 days before the 
bank's subsidiary may engage in such activities. If the FDIC does not 
object, the bank's subsidiary may commence the activity. This 30-day 
advance notice is designed to allow the FDIC time to review the 
activity and consider whether safety and soundness considerations make 
it prudent that additional conditions be placed on the conduct of the 
activity.
    The four statutory conditions contained in section 46(a) and 
reiterated in Sec. 362.18(a) are:
     Each insured depository institution affiliate of the state 
bank must be well capitalized, and the state bank must be well 
capitalized after deducting the bank's investment, including retained 
earnings, in all subsidiaries engaged in financial subsidiary 
activities as principal.
     The state bank must disclose the capital deduction and the 
separate assets and liabilities of the subsidiary in any published 
financial statement.
     The state bank must comply with the financial and 
operational safeguards required by section 5136A(d) of the Revised 
Statutes of the United States, which require operational safeguards to 
separate the bank from the risks of the subsidiary.
     The state bank must comply with sections 23A and 23B of 
the Federal Reserve Act as amended by section 121(b) of the G-L-B Act, 
requiring certain transactional restrictions to be observed.
    Section 362.18(b) provides that the bank must comply with the above 
requirements at the time of filing of its notice and continue to comply 
with these four requirements as long as the bank's subsidiary is 
engaged in the financial activity. In addition, as specified in 
Sec. 362.18(c), a subsidiary of an insured state nonmember bank may not 
commence any financial subsidiary activity as principal if the state 
bank or any of the state bank's insured depository institution 
affiliates has received at each one's most recent examination a CRA 
rating of less than a satisfactory record of meeting community credit 
needs.\3\
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    \3\ This prohibition is required by section 4(l)(2) of the BHCA 
as enacted in section 103(a) of the G-L-B Act which is to be 
codified at 12 U.S.C. 1843(l)(2).
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    The prior notice procedure under Sec. 362.18 will give the FDIC an 
opportunity to review a state nonmember bank's proposal and, if 
necessary, impose additional prudential safeguards to insulate the bank 
from liability for the activities of the subsidiary. The FDIC holds 
authority to impose such safeguards under the FDIC's supervisory 
authority in section 8 of the FDI Act (12 U.S.C. 1818). In addition, 
section 114(c) of the G-L-B Act (12 U.S.C. 1828a(c)) confirms the 
FDIC's prudential authority to govern the relationships or transactions 
between a state nonmember bank and its subsidiaries. Although one of 
the four conditions imposed by section 46(a) itself requires the bank 
to have financial and operational safeguards to separate the bank from 
risks of the subsidiary, the FDIC believes that it is still necessary 
that the FDIC review the activities that state nonmember banks propose 
to undertake to evaluate whether the bank's financial and operational 
safeguards are sufficient. The financial and operational safeguard 
requirement in section 46(a) cross-references to the same requirement 
as imposed on financial subsidiaries of national banks under section 
5136A(d) of the Revised Statutes, but the OCC has not released any 
guidance or interpretations of these financial and operational 
safeguards. The FDIC's review is likely to be especially important in 
the area of securities underwriting. The FDIC has a long history of 
imposing prudential safeguards to protect the bank from liability from 
subsidiaries and affiliates that engage in securities underwriting. \4\
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    \4\ See 12 CFR 337.4.
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    Section 362.18(d) incorporates the grandfather provided under 
section 46(b), permitting insured state banks to retain their interests 
in subsidiaries lawfully held before the date of enactment of the G-L-B 
Act. Section 362.18(d) also clearly states that state banks may not 
apply to the FDIC under section 24 or subpart A of part 362 (as well as 
Sec. 337.4 of the FDIC's rules) for approval to engage in a financial 
subsidiary activity subject to restrictions different than are 
contemplated under section 46.
    The FDIC also has amended its notice processing rules at 303.122(a) 
to add a reference to the new notices required by the interim final 
rule.

IV. Administrative Procedure Act

    The FDIC will make this interim final rule effective on March 11, 
2000 without first reviewing public comments. Pursuant to 5 U.S.C. 553, 
the FDIC finds that it is impracticable to review public comments prior 
to the effective date of the interim final rule, and that there is good 
cause to make the interim rule effective on March 11, 2000, due to the 
fact that the rule sets forth procedures to implement statutory changes 
that will become effective on March 11, 2000. The FDIC is seeking 
public comment on all aspects of the interim final rule and will amend 
the rule as appropriate after reviewing the comments. The FDIC is 
specifically seeking comment on whether the FDIC should set forth 
specific standards applicable to activities conducted under the new 
section 46 of the FDI Act as it has done in subpart A with respect to 
activities conducted under section 24 of the FDI Act.

V. Paperwork Reduction Act

    In accordance with the Paperwork Reduction Act of 1980 (44 U.S.C. 
3501 et seq.), the FDIC may not conduct or sponsor, and a person is not 
required to respond to, a collection of information unless it displays 
a currently valid Office of Management and Budget (OMB) control number. 
The collection of information contained in this rule has been submitted 
to OMB for review. OMB will take action within 60 days of this Federal 
Register publication. The FDIC will publish notice if OMB takes an 
action other than approval of the collection. The FDIC invites comment 
on:
    (1) Whether the collection of information contained in the 
regulation

[[Page 15529]]

is necessary for the proper performance of the FDIC's functions, 
including whether the information has practical utility;
    (2) The accuracy of the estimate of the burden of the information 
collection;
    (3) Ways to enhance the quality, utility, and clarity of the 
information to be collected;
    (4) Ways to minimize the burden of the information collections on 
respondents, including the use of automated collection techniques or 
other forms of information technology; and
    (5) Estimates of capital or start-up costs and costs of operation, 
maintenance, and purchase of services to provide information.
    For further information on the Paperwork Reduction Act aspect of 
this rule, contact Steven F. Hanft at FDIC Clearance Officer, Office of 
the Executive Secretary, Federal Deposit Insurance Corporation, 550 
17th Street, N.W., Washington, D.C. 20429, (202) 898-3907.
    Title of the collection: The interim final rule modifies an 
information collection previously approved by OMB titled "Activities 
and Investments of Insured State Banks" under control number 3064-
0111.
    Summary of the collection: Generally, the collection includes the 
description of the activity in which an insured state bank or its 
subsidiary proposes to engage that would be impermissible absent the 
FDIC's consent or nonobjection, and information about the relationship 
of the activity to the bank's and/or subsidiary's operation and 
compliance with applicable laws and regulations.
    Need and Use of the information: The FDIC uses the information to 
determine whether to grant consent or provide a nonobjection for the 
insured state bank or its subsidiary to engage in the activity that 
otherwise would be impermissible. The FDIC's uses its authority under 
section 8 of the FDI Act and 12 CFR part 362.
    Changes to the collection: The interim final rule will modify the 
collection by adding at Sec. 362.18(a) the requirement of a notice to 
the FDIC before the state nonmember bank engages through a subsidiary 
in activities that are authorized for a financial subsidiary of a 
national bank under section 5136A of the Revised Statutes but are not 
permissible for the national bank itself. The contents of the notice 
are described at Sec. 303.121(b).
    Respondents: Banks or their subsidiaries desiring to engage in 
activities that would be impermissible absent the FDIC's consent or 
nonobjection.
    Estimated annual burden resulting from this rulemaking:
    Frequency of response: Occasional.
    Number of responses: 1.
    Average number of hours to prepare a response: 8 hours.
    Total annual burden: 8 hours.

VI. Regulatory Flexibility Act Analysis

    Pursuant to section 605(b) of the Regulatory Flexibility Act, the 
FDIC certifies that this interim final rule will not have a significant 
economic impact on a substantial number of small entities. As noted 
above in connection with the Paperwork Reduction Act, the FDIC 
estimates that the incidences in which insured state nonmember banks 
will be required to file a notice under the rule will be infrequent and 
will not require significant time to complete. Furthermore, the interim 
final rule streamlines requirements for insured state nonmember banks. 
It simplifies the requirements that apply when insured state nonmember 
banks conduct certain activities through subsidiaries. Whenever 
possible, the interim final rule clarifies the expectations of the FDIC 
when it requires notices or applications to consent to activities by 
insured state banks. The interim final rule also will make it easier 
for small insured state banks to locate the rules that apply to their 
investments.

VII. Assessment of Impact of Federal Regulation on Families

    The FDIC has determined that this regulation will not affect family 
well-being within the meaning of section 654 of the Treasury and 
General Government Appropriations Act, 1999, enacted as part of the 
Omnibus Consolidated and Emergency Supplemental Appropriations Act, 
1999 (Pub. L. 105-277, 112 Stat. 2681).

VIII. Congressional Review Act

    The OMB has determined that this interim final rule is not a 
"major rule" within the meaning of the Congressional Review Act (5 
U.S.C. 801 et seq.). The FDIC will file the appropriate reports with 
Congress and the General Accounting Office so that this interim final 
rule can be reviewed.

List of Subjects

12 CFR Part 303

    Administrative practice and procedure, Authority delegations 
(Government agencies), Banks, banking, Bank deposit insurance, 
Reporting and recordkeeping requirements, Savings associations.

12 CFR Part 362

    Administrative practice and procedure, Authority delegations 
(Government agencies), Bank deposit insurance, Banks, banking, Insured 
depository institutions, Investments, Reporting and record keeping 
requirements, Savings associations.

    For the reasons set forth above and under the authority of 12 
U.S.C. 1819(a)(Tenth), the FDIC Board of Directors hereby amends 12 CFR 
chapter III as follows:

PART 303--FILING PROCEDURES AND DELEGATIONS OF AUTHORITY

    1. The authority citation for part 303 is revised to read as 
follows:

    Authority: 12 U.S.C. 378, 1813, 1815, 1816, 1817, 1818, 1819 
(Seventh and Tenth), 1820, 1823, 1828, 1828a, 1831a, 1831e, 1831o, 
1831p-1, 1831w, 1835a, 1843(l), 3104, 3105, 3108; 3207; 15 U.S.C. 
1601-1607.

    2. Section 303.120 is revised to read as follows:

Sec. 303.120  Scope.

    This subpart sets forth procedures for complying with notice and 
application requirements contained in subpart A of part 362 of this 
chapter, governing insured state banks and their subsidiaries engaging 
in activities which are not permissible for national banks and their 
subsidiaries. This subpart sets forth procedures for complying with 
notice and application requirements contained in subpart B of part 362 
of this chapter, governing certain activities of insured state 
nonmember banks, their subsidiaries, and certain affiliates. This 
subpart also sets forth procedures for complying with the notice 
requirements contained in subpart E of part 362 of this chapter, 
governing subsidiaries of insured state nonmember banks engaging in 
certain financial activities.

    3. Section 303.121 is revised to read as follows:


Sec. 303.121  Filing procedures.

    (a) Where to file. A notice or application required by subparts A, 
B or E of part 362 of this chapter shall be submitted in writing to the 
appropriate regional director (DOS).
    (b) Contents of filing. A complete letter notice or letter 
application shall include the following information:
    (1) Filings generally.--(i) A brief description of the activity and 
the manner in which it will be conducted;
    (ii) The amount of the bank's existing or proposed direct or 
indirect investment in the activity as well as calculations sufficient 
to indicate compliance with any specific capital ratio or investment 
percentage

[[Page 15530]]

limitation detailed in subparts A, B or E of part 362 of this chapter;
    (iii) A copy of the bank's business plan regarding the conduct of 
the activity;
    (iv) A citation to the state statutory or regulatory authority for 
the conduct of the activity;
    (v) A copy of the order or other document from the appropriate 
regulatory authority granting approval for the bank to conduct the 
activity if such approval is necessary and has already been granted;
    (vi) A brief description of the bank's policy and practice with 
regard to any anticipated involvement in the activity by a director, 
executive office or principal shareholder of the bank or any related 
interest of such a person; and
    (vii) A description of the bank's expertise in the activity.
    (2) [Reserved]
    (3) Copy of application or notice filed with another agency. If an 
insured state bank has filed an application or notice with another 
federal or state regulatory authority which contains all of the 
information required by paragraph (b) (1) of this section, the insured 
state bank may submit a copy to the FDIC in lieu of a separate filing.
    (4) Additional information. The appropriate regional director (DOS) 
may request additional information to complete processing.

    4. In Sec. 303.122, the first sentence of paragraph (a) is revised 
to read as follows:


Sec. 303.122  Processing.

    (a) Expedited processing. A notice filed by an insured state bank 
seeking to commence or continue an activity under Sec. 362.4(b)(3)(i), 
Sec. 362.4(b)(5), Sec. 362.8, or Sec. 362.18(a) of this chapter will be 
acknowledged in writing by the FDIC and will receive expedited 
processing, unless the applicant is notified in writing to the contrary 
and provided a basis for that decision. * * *
* * * * *

    5. In Sec. 303.123, paragraph (b) is revised to read as follows:


Sec. 303.123  Delegations of authority.

* * * * *
    (b) Other applications, notices, and actions. The authority to 
review and act upon applications and notices filed pursuant to this 
subpart G and to take any other action authorized by this subpart G or 
subparts A, B and E of part 362 of this chapter is delegated to the 
Director (DOS), and except as limited by paragraph (a) of this section, 
to the Deputy Director and where confirmed in writing by the Director 
to an associate director and the appropriate regional director and 
deputy regional director.

PART 362--ACTIVITIES OF INSURED STATE BANKS AND INSURED SAVINGS 
ASSOCIATIONS

    6. The authority citation for part 362 is revised to read as 
follows:

    Authority: 12 U.S.C. 1816, 1818, 1819(a) (Tenth), 1828(m), 
1828a, 1831a, 1831e, 1831w, 1843(l) .

    7. A new subpart E is added as follows:
Subpart E--Financial Subsidiary Activities of Insured State Nonmember 
Banks
Sec.
326.16   Purpose and scope.
326.17   Definitions.
326.18   Restrictions on financial subsidiary activities of insured 
state nonmember bank subsidiaries.

Subpart E--Financial Subsidiary Activities of Insured State 
Nonmember Banks


Sec. 362.16  Purpose and scope.

    (a) This subpart, along with the notice procedures in subpart G of 
part 303 of this chapter apply to certain banking practices that may 
have adverse effects on the safety and soundness of insured state 
nonmember banks. This subpart implements section 46 of the Federal 
Deposit Insurance Act (12 U.S.C. 1831w) and requires that notices be 
filed with the FDIC before subsidiaries of insured state nonmember 
banks conduct financial subsidiary activities. The phrase "financial 
subsidiary activity" means an activity which has been authorized for a 
financial subsidiary of a national bank under section 5136A of the 
Revised Statutes (12 U.S.C. 24 A) and which may be conducted by a 
national bank only through a financial subsidiary. Under this subpart, 
the FDIC may impose standards and prudential safeguards when 
subsidiaries of insured state nonmember banks engage in financial 
subsidiary activities. This subpart also implements the statutory 
Community Reinvestment Act (CRA) (12 U.S.C. 2901 et seq.) requirement 
applicable to these financial subsidiary activities.
    (b) This subpart does not cover activities conducted other than 
"as principal", defined for purposes of this subpart as activities 
conducted as agent for a customer, conducted in a brokerage, custodial, 
advisory, or administrative capacity, or conducted as trustee, or in 
any substantially similar capacity. For example, this subpart does not 
cover acting solely as agent for the sale of insurance, securities, 
real estate, or travel services; nor does it cover acting as trustee, 
providing personal financial planning advice, or safekeeping services.
    (c) The FDIC intends to allow insured state nonmember bank 
subsidiaries to undertake only safe and sound activities and 
investments that would not present a significant risk to the deposit 
insurance fund and that are consistent with the purposes of federal 
deposit insurance and other applicable law. This subpart does not 
authorize any insured state nonmember bank subsidiary to conduct 
activities that are not authorized or that are prohibited by either 
state or federal law.


Sec. 362.17  Definitions.

    For the purposes of this subpart, the following definitions will 
apply:
    (a) Activity, company, control, insured depository institution, 
insured state bank, insured state nonmember bank, and subsidiary have 
the same meaning as provided in subpart A of this part.
    (b) Affiliate has the same meaning contained in section 3 of the 
Federal Deposit Insurance Act (12 U.S.C. 1813).


Sec. 362.18  Restrictions on financial subsidiary activities of insured 
state nonmember bank subsidiaries.

    (a) Financial subsidiary activities. The FDIC Board of Directors 
has found that depending on the facts and circumstances of a particular 
case, the conduct of a financial subsidiary activity as principal in a 
subsidiary of an insured state nonmember bank may have adverse effects 
on the safety and soundness of the insured state nonmember bank. The 
FDIC Board of Directors has found that the FDIC cannot make a 
determination whether there are adverse effects on the safety and 
soundness of an insured state nonmember bank engaging in such 
activities through a subsidiary and whether additional prudential 
safeguards are necessary, unless the FDIC has had an opportunity for 
prior review of the activities. Therefore, an insured state nonmember 
bank may not establish, acquire or hold a subsidiary that engages in 
financial subsidiary activities as principal or commence any such new 
activity pursuant to section 46(a) of the Federal Deposit Insurance Act 
(12 U.S.C. 1831w) unless:
    (1) The insured state nonmember bank submits a notice under 
Sec. 303.121 of this chapter and the FDIC processes the notice without 
objection under Sec. 303.122(a) of this chapter. Consent only will be 
given if the FDIC determines the activity poses no adverse effects on 
the safety and soundness of

[[Page 15531]]

the insured state nonmember bank. Approvals granted under 
Sec. 303.122(a) may be made subject to any conditions or restrictions 
found by the FDIC to be necessary to protect the deposit insurance 
funds from risk, prevent unsafe or unsound banking practices, and/or 
ensure that the activity is consistent with the purposes of federal 
deposit insurance and other applicable law.
    (2) The insured state nonmember bank and the subsidiary comply with 
sections 23A and 23B of the Federal Reserve Act (12 U.S.C. 371c and 
371c-1), as if the subsidiary were a financial subsidiary within the 
meaning of section 23A(e)(1).
    (3) All insured depository institution affiliates of the insured 
state nonmember bank are well-capitalized as defined in the appropriate 
capital regulation and guidance of each institution's primary federal 
regulator, and the insured state nonmember bank complies with the 
capital deduction requirement in accordance with Sec. 362.4(e)(1) 
through (3), discloses that capital separation in any published 
financial statements and does not consolidate the subsidiary's assets 
and liabilities with those of the insured state bank in any published 
financial statements.
    (4) The insured state nonmember bank and the subsidiary meet the 
financial and operational safeguards applicable to a financial 
subsidiary of a national bank conducting the same activities as 
provided in section 5136A(d) of the Revised Statutes of the United 
States (12 U.S.C. 24A(d)).
    (b) Time of compliance. Any insured state nonmember bank that files 
a notice under paragraph (a) of this section to which the FDIC does not 
object must, at the time of the filing of such notice and as long as 
the insured state nonmember bank's subsidiary is engaged in the 
financial subsidiary activity, comply with the requirements of 
paragraphs (a)(2), (a)(3), and (a)(4) of this section.
    (c) Community Reinvestment Act (CRA). An insured state nonmember 
bank may not commence any new financial subsidiary activity through a 
subsidiary as principal or directly or indirectly establish or acquire 
control of a company engaged in any such activity pursuant to paragraph 
(a) of this section, if the bank or any of its insured depository 
institution affiliates received a CRA rating of less than 
"satisfactory record of meeting community credit needs" on its most 
recent CRA examination prior to when the bank files a notice under this 
section.
    (d) Coordination with section 24 of the Federal Deposit Insurance 
Act. (1) Grandfathered subsidiaries. Notwithstanding paragraphs (a) 
through (c) of this section, an insured state bank may retain its 
interest in any subsidiary that:
    (i) Was conducting the financial subsidiary activity as principal 
before November 12, 1999;
    (ii) With authorization in accordance with section 24 of the 
Federal Deposit Insurance Act (12 USC 1831a) and its implementing 
regulation found in subpart A of this part 362; and
    (iii) Which continues to meet the conditions and restrictions of 
the part 362 order or regulation approving the activity as well as 
other applicable law.
    (2) New financial subsidiary activities. Notwithstanding subpart A 
of this part 362 or Sec. 337.4 of this chapter, an insured state bank 
may not, on or after November 12, 1999, establish, acquire or hold a 
subsidiary that engages in financial subsidiary activities as principal 
or commence any such new activity other than as provided in this 
section.

    By order of the Board of Directors.

    Dated at Washington, D.C. this 9th day of March, 2000.

Federal Deposit Insurance Corporation.
Robert E. Feldman,
Executive Secretary.
[FR Doc. 00-7161 Filed 3-22-00; 8:45 am]
BILLING CODE 6714 -01-P


Last Updated 11/18/2011 communications@fdic.gov