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7500 - FRB Regulations


PART 225—BANK HOLDING COMPANIES
AND CHANGE IN BANK CONTROL (REGULATION Y)

Regulations

Subpart A—General Provisions

Sec.

225.1 Authority, purpose, and scope.
225.2 Definitions.
225.3 Administration.
225.4 Corporate practices.
225.5 Registration, reports, and inspections.
225.6 Penalties for violations.
225.7 Exceptions to tying restrictions.
225.8 Capital Planning.

Subpart B—Acquisition of Bank Securities or Assets

225.11 Transactions requiring Board approval.
225.12 Transactions not requiring Board approval.
225.13 Factors considered in acting on bank acquisition proposals.
225.14 Expedited action for certain bank acquisitions by well-run bank holding companies.
225.15 Procedures for other bank acquisition proposals.
225.16 Public notice, comments, hearings, and other provisions governing applications and notices.
225.17 Notice procedure for one-bank holding company formations.

Subpart C—Nonbanking Activities and Acquisitions by Bank Holding Companies

225.21 Prohibited nonbanking activities and acquisitions: exempt bank holding companies.
225.22 Exempt nonbanking activities and acquisitions.
225.23 Expedited action for certain nonbanking proposals by well-run bank holding companies.
225.24 Procedures for other nonbanking proposals.
225.25 Hearings, alteration of activities, and other matters.
225.26 Factors considered in acting on nonbanking proposals.
225.27 Procedures for determining scope of nonbanking activities.
225.28 List of permissible nonbanking activities.

Subpart D—Control and Divestiture Proceedings

225.31 Control proceedings.

Subpart E—Change in Bank Control

225.41 Transactions requiring prior notice.
225.42 Transactions not requiring prior notice.
225.43 Procedures for filing, processing, publishing, and acting on notices.
225.44 Reporting of stock loans.

Subpart F—Limitations on Nonbank Banks

225.52 Limitation on overdrafts.

Subpart G—Appraisal Standards for Federally Related Transactions

225.61 Authority, purpose, and scope.
225.62 Definitions.
225.63 Appraisals not required; transactions requiring a state certified or licensed appraiser.
225.64 Minimum appraisal standards.
225.65 Appraiser independence.
225.66 Professional association membership; competency.
225.67 Enforcement.

Subpart H—Notice of Addition or Change of Directors and Senior Executive Officers

Sec.

225.71 Definitions.
225.72 Director and officer appointments; prior notice requirement.
225.73 Procedures for filing, processing, and acting on notices; standards for disapproval; waiver of notice.

Subpart I—Financial Holding Companies

225.81 What is a financial holding company?
225.82 How does a bank holding company elect to become a financial holding company?
225.83 What are the consequences of failing to continue to meet applicable capital and management requirements?
225.84 What are the consequences of failing to maintain a satisfactory or better rating under the Community Reinvestment Act at all insured depository institution subsidiaries?
225.85 Is notice to or approval from the Board required prior to engaging in a financial activity?
225.86 What activities are permissible for financial holding companies?
225.87 Is notice to the Board required after engaging in a financial activity?
225.88 How to request the Board to determine that an activity is financial in nature or incidental to a financial activity?
225.89 How to request approval to engage in an activity that is complementary to a financial activity?
225.90 What are the requirements for a foreign bank to be treated as a financial holding company?
225.91 How may a foreign bank elect to be treated as a financial holding company?
225.92 How does an election by a foreign bank become effective?
225.93 What are the consequences of a foreign bank failing to continue to meet applicable capital and management requirements?
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?

Interpretations

225.101 Bank holding company's subsidiary banks owning shares of nonbanking companies.
225.102 Bank holding company indirectly owning nonbanking company through subsidiaries.
225.103 Bank holding company acquiring stock by dividends, stock splits or exercise of rights.
225.104 ``Services'' under section 4(c)(1) of Bank Holding Company Act.
225.107 Acquisition of stock in small business investment company.
225.109 ``Services'' under section 4(c)(1) of Bank Holding Company Act.
225.111 Limit on investment by bank holding company system in stock of small business investment companies.
225.112 Indirect control of small business concern through convertible debentures held by small business investment company.
225.113 Services under section 4(a) of Bank Holding Company Act.
225.115 Applicability of Bank Service Corporation Act in certain bank holding company situations.
225.118 Computer services for customers of subsidiary banks.
225.121 Acquisition of Edge corporation affiliate by State member banks of registered bank holding company.
225.122 Bank holding company ownership of mortgage companies.
225.123 Activities closely related to banking.
225.124 Foreign bank holding companies.
225.125 Investment adviser activities.
225.126 Activities not closely related to banking.
225.127 Investment in corporations or projects designed primarily to promote community welfare.
225.129 Activities closely related to banking.
225.130 Issuance and sale of short-term debt obligations by bank holding companies.
225.131 Activities closely related to banking.
225.132 Acquisition of assets.
225.133 Computation of amount invested in foreign corporations under general consent procedures.
225.134 Escrow arrangements involving bank stock resulting in a violation of the Bank Holding Company Act.
225.136 Utilization of foreign subsidiaries to sell long-term debt obligations in foreign markets and to transfer the proceeds to their United States parent(s) for domestic purposes.
225.137 Acquisition of shares pursuant to section 4(c)(6) of the Bank Holding Company Act.
225.138 Statement of policy concerning divestitures by bank holding companies.
225.139 Presumption of continued control under section 2(g)(3) of the Bank Holding Company Act.
225.140 Disposition of property acquired in satisfaction of debts previously contracted.
225.141 Operations subsidiaries of a bank holding company.
225.142 Statement of policy concerning bank holding companies engaging in futures, forward and options contracts on U.S. Government and agency securities and money market instruments.
225.143 Policy statement on nonvoting equity investments by bank holding companies.
225.144 Removed
225.145 Limitations established by the Competitive Equality Banking Act of 1987 on the activities and growth of nonbank banks.

Subpart J—Merchant Banking Investments

225.170 What type of investments are permitted by this subpart, and under what conditions may they be made?
225.171 What are the limitations on managing or operating a portfolio company held as a merchant banking investment?
225.172 What are the holding periods permitted for merchant banking investments?
225.173 How are investments in private equity funds treated under this subpart?
225.174 What aggregate thresholds apply to merchant banking investments?
225.175 What risk management, record keeping and reporting policies are required to make merchant banking investments?
225.176 How do the statutory cross marketing and sections 23A and B limitations apply to merchant banking investments?
225.177 Definitions.
225.200 Conditions to Board's section 20 orders.

Appendices to Subparts

Appendix A--Capital Adequacy Guidelines for Bank Holding Companies: Risk-Based Measure

Appendix B to Part 225—[Reserved]

Appendix C to Part 225—Small Bank Holding Company Policy Statement

Appendix D to Part 225--Capital Adequacy Guidelines for Bank Holding Companies: Tier 1 Leverage Measure

Appendix E to Part 225—Capital Adequacy Guidelines for Bank Holding Companies:  Market Risk Measure

Appendix F to Part 225—Interagency Guidelines Establishing Standards for Safeguarding  Customer Information.

AUTHORITY:  12 U.S.C. 1817(j)(13), 1818, 1828(o), 1831i, 1831p--1, 1843(c)(8), 1844(b), 1972(1), 3106, 3108, 3310, 3331--3351, 3907 and 3909; 15 U.S.C. 1681s, 1681w, 6801 and 6805.

SOURCE:  The provisions of this Part 225 appear at 49 Fed. Reg. 794, January 5, 1984, effective February 6, 1984, and 58 Fed. Reg. 50512, September 28, 1993, except for the procedural provisions of §§ 225.14 and 225.23, which will be effective for all applications and notices submitted to the Board on and after January 1, 1984.

REGULATIONS

Subpart A—General Provisions

§ 225.1  Authority, purpose, and scope.

(a)  Authority. This part1 (Regulation Y) is issued by the Board of Governors of the Federal Reserve System (Board) under section 5(b) of the Bank Holding Company Act of 1956, as amended (12 U.S.C. 1844(b)) (BHC Act); sections 8 and 13(a) of the International Banking Act of 1978 (12 U.S.C. 3106 and 3108); section 7(j)(13) of the Federal Deposit Insurance Act, as amended by the Change in Bank Control Act of 1978 (12 U.S.C. 1817(j)(13)) (Bank Control Act); section 8(b) of the Federal Deposit Insurance Act (12 U.S.C. 1818(b)); section 914 of the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (12 U.S.C. 1831i); section 106 of the Bank Holding Company Act Amendments of 1970 (12 U.S.C. 1972); and the International Lending Supervision Act of 1983 (Pub. L. 98-181, title IX). The BHC Act is codified at 12 U.S.C. 1841, et seq.

(b)  Purpose. The principal purposes of this part are to:

(1)  Regulate the acquisition of control of banks by companies and individuals;

(2)  Define and regulate the nonbanking activities in which bank holding companies and foreign banking organizations with United States operations may engage; and

(3)  Set forth the procedures for securing approval for these transactions and activities.

(c)  Scope--(1)  Subpart A contains general provisions and definitions of terms used in this regulation.

(2)  Subpart B governs acquisitions of bank or bank holding company securities and assets by bank holding companies or by any company that will become a bank holding company as a result of the acquisition.

(3)  Subpart C defines and regulates the nonbanking activities in which bank holding companies and foreign banking organizations may engage directly or through a subsidiary. The Board's Regulation K governs certain nonbanking activities conducted by foreign banking organizations and certain foreign activities conducted by bank holding companies (12 CFR part 211, International Banking Operations).

(4)  Subpart D specifies situations in which a company is presumed to control voting securities or to have the power to exercise a controlling influence over the management or policies of a bank or other company; sets forth the procedures for making a control determination; and provides rules governing the effectiveness of divestitures by bank holding companies.

(5)  Subpart E governs changes in bank control resulting from the acquisition by individuals or companies (other than bank holding companies) of voting securities of a bank holding company or state member bank of the Federal Reserve System.

(6)  Subpart F specifies the limitations that govern companies that control so-called nonbank banks and the activities of nonbank banks.

(7)  Subpart G prescribes minimum standards that apply to the performance of real estate appraisals and identifies transactions that require state certified appraisers.

(8)  Subpart H identifies the circumstances when written notice must be provided to the Board prior to the appointment of a director or senior officer of a bank holding company and establishes procedures for obtaining the required Board approval.

(9)  Subpart I establishes the procedure by which a bank holding company may elect to become a financial holding company, enumerates the consequences if a financial holding company ceases to meet a requirement applicable to a financial holding company, lists the activities in which a financial holding company may engage, establishes the procedure by which a person may request the Board to authorize additional activities as financial in nature or incidental thereto, and establishes the procedure by which a financial holding company may seek approval to engage in an activity that is complementary to a financial activity.

(10)  Subpart J governs the conduct of merchant banking investment activities by financial holding companies as permitted under section 4(k)(4)(H) of the Bank Holding Company Act (12 U.S.C. 1843 (k)(4)(H)).

(11)  Subpart K governs the period of time that firms subject to section 13 of the Bank Holding Company Act (12 U.S.C. 1851) have to bring their activities, investments and relationships into compliance with the requirements of such section.

(12)  Appendix B contains the Board's Capital Adequacy Guidelines for measuring leverage for bank holding companies and state member banks.

(13)  Appendix C contains the Board's policy statement governing small bank holding companies.

(14)  Appendix D contains the Board's Capital Adequacy Guidelines for measuring tier 1 leverage for bank holding companies.

(15)  Appendix E contains the Board's Capital Adequacy Guidelines for measuring market risk of bank holding companies.

(16)  Appendix F contains the Interagency Guidelines Establishing Standards for Safeguarding Customer Information.

[Codified to 12 C.F.R. § 225.1]

[Section 225.1 amended at 62 Fed. Reg. 9319, February 28, 1997, effective April 21, 1997; 65 Fed. Reg. 16472, March 28, 2000, effective March 17, 2000; 66 Fed. Reg. 414, January 3, 2001, effective February 2, 2001; 66 Fed. Reg. 8484, January 31, 2001, effective February 15, 2001; 66 Fed. Reg. 8636, February 1, 2001, effective July 1, 2001; 76 FR 8275, February 14, 2011]

§ 225.2  Definitions.

Except as modified in this regulation or unless the context otherwise requires, the terms used in this regulation have the same meaning as set forth in the relevant statutes.

(a)  Affiliate means any company that controls, is controlled by, or is under common control with, another bank.

(b)(1)  Bank means:

(i)  An insured bank as defined in section 3(h) of the Federal Deposit Insurance Act (12 U.S.C. 1813(h)); or

(ii)  An institution organized under the laws of the United States which both:

(A)  Accepts demand deposits or deposits that the depositor may withdraw by check or similar means for payment to third parties or others; and

(B)  Is engaged in the business of making commercial loans.

(2)  Bank does not include those institutions qualifying under the exceptions listed in section 2(c)(2) of the BHC Act (12 U.S.C. 1841(c)(2)).

(c)(1)  Bank holding company means any company (including a bank) that has direct or indirect control of a bank, other than control that results from the ownership or control of:

(i)  Voting securities held in good faith in a fiduciary capacity (other than as provided in paragraphs (e)(2)(ii) and (iii) of this section) without sole discretionary voting authority, or as otherwise exempted under section 2(a)(5)(A) of the BHC Act;

(ii)  Voting securities acquired and held only for a reasonable period of time in connection with the underwriting of securities, as provided in section 2(a)(5)(B) of the BHC Act;

(iii)  Voting rights to voting securities acquired for the sole purpose and in the course of participating in a proxy solicitation, as provided in section 2(a)(5)(C) of the BHC Act;

(iv)  Voting securities acquired in satisfaction of debts previously contracted in good faith, as provided in section 2(a)(5)(D) of the BHC Act, if the securities are divested within two years of acquisition (or such later period as the Board may permit by order); or

(v)  Voting securities of certain institutions owned by a thrift institution or a trust company, as provided in sections 2(a)(5)(E) and (F) of the BHC Act.

(2)  Except for the purposes of § 225.4(b) of this subpart and subpart E of this part or as otherwise provided in this regulation, bank holding company includes a foreign banking organization. For the purposes of subpart B of this part, bank holding company includes a foreign banking organization only if it owns or controls a bank in the United States.

(d)(1)  Company includes any bank, corporation, general or limited partnership, association or similar organization, business trust, or any other trust unless by its terms it must terminate either within 25 years, or within 21 years and 10 months after the death of individuals living on the effective date of the trust.

(2)  Company does not include any organization, the majority of the voting securities of which are owned by the United States or any state.

(3)  Testamentary trusts exempt. Unless the Board finds that the trust is being operated as a business trust or company, a trust is presumed not to be a company if the trust:

(i)  Terminates within 21 years and 10 months after the death of grantors or beneficiaries of the trust living on the effective date of the trust or within 25 years;

(ii)  Is a testamentary or inter vivos trust established by an individual or individuals for the benefit of natural persons (or trusts for the benefit of natural persons) who are related by blood, marriage or adoption;

(iii)  Contains only assets previously owned by the individual or individuals who established the trust;

(iv)  Is not a Massachusetts business trust; and

(v)  Does not issue shares, certificates, or any other evidence of ownership.

(4)  Qualified limited partnerships exempt. Company does not include a qualified limited partnership, as defined in section 2(o)(10) of the BHC Act.

(e)(1)   Control of a bank or other company means (except for the purposes of subpart E of this part):

(i)  Ownership, control, or power to vote 25 percent or more of the outstanding shares of any class of voting securities of the bank or other company, directly or indirectly or acting through one or more other persons;

(ii)  Control in any manner over the election of a majority of the directors, trustees, or general partners (or individuals exercising similar functions) of the bank or other company;

(iii)  The power to exercise, directly or indirectly, a controlling influence over the management or policies of the bank or other company, as determined by the Board after notice and opportunity for hearing in accordance with § 225.31 of subpart D of this part; or

(iv)  Conditioning in any manner the transfer of 25 percent or more of the outstanding shares of any class of voting securities of a bank or other company upon the transfer of 25 percent or more of the outstanding shares of any class of voting securities of another bank or other company.

(2)  A bank or other company is deemed to control voting securities or assets owned, controlled, or held, directly or indirectly:

(i)  By any subsidiary of the bank or other company;

(ii)  In a fiduciary capacity (including by pension and profit-sharing trusts) for the benefit of the shareholders, members, or employees (or individuals serving in similar capacities) of the bank or other company or any of its subsidiaries; or

(iii)  In a fiduciary capacity for the benefit of the bank or other company or any of its subsidiaries.

(f)  Foreign banking organization and qualifying foreign banking organization have the same meanings as provided in § 211.21(n) and § 211.23 of the Board's Regulation K (12 CFR 211.21(n) and 211.23).

(g)  Insured depository institution includes an insured bank as defined in section 3(h) of the Federal Deposit Insurance Act (12 U.S.C. 1813(h)) and a savings association.

(h)  Lead insured depository institution means the largest insured depository institution controlled by the bank holding company as of the quarter ending immediately prior to the proposed filing, based on a comparison of the average total risk-weighted assets controlled during the previous 12-month period by each insured depository institution subsidiary of the holding company.

(i)  Management official means any officer, director (including honorary or advisory directors), partner, or trustee of a bank or other company, or any employee of the bank or other company with policy-making functions.

(j)  Nonbank bank means any institution that:

(1)  Became a bank as a result of enactment of the Competitive Equality Amendments of 1987 (Pub. L. 100-86), on the date of enactment (August 10, 1987); and

(2)  Was not controlled by a bank holding company on the day before the enactment of the Competitive Equality Amendments of 1987 (August 9, 1987).

(k)  Outstanding shares means any voting securities, but does not include securities owned by the United States or by a company wholly owned by the United States.

(l)  Person includes an individual, bank, corporation, partnership, trust, association, joint venture, pool, syndicate, sole proprietorship, unincorporated organization, or any other form of entity.

(m)  Savings association means:

(1)  Any federal savings association or federal savings bank;

(2)  Any building and loan association, savings and loan association, homestead association, or cooperative bank if such association or cooperative bank is a member of the Savings Association Insurance Fund; and

(3)  Any savings bank or cooperative that is deemed by the director of the Office of Thrift Supervision to be a savings association under section 10(l) of the Home Owners Loan Act.

(n)  Shareholder--(1)  Controlling shareholder means a person that owns or controls, directly or indirectly, 25 percent or more of any class of voting securities of a bank or other company.

(2)  Principal shareholder means a person that owns or controls, directly or indirectly, 10 percent or more of any class of voting securities of a bank or other company, or any person that the Board determines has the power, directly or indirectly, to exercise a controlling influence over the management or policies of a bank or other company.

(o)  Subsidiary means a bank or other company that is controlled by another company, and refers to a direct or indirect subsidiary of a bank holding company. An indirect subsidiary is a bank or other company that is controlled by a subsidiary of the bank holding company.

(p)  United States means the United States and includes any state of the United States, the District of Columbia, any territory of the United States, Puerto Rico, Guam, American Samoa, and the Virgin Islands.

(q)(1)  Voting securities means shares of common or preferred stock, general or limited partnership shares or interests, or similar interests if the shares or interest, by statute, charter, or in any manner, entitle the holder:

(i)  To vote for or to select directors, trustees, or partners (or persons exercising similar functions of the issuing company); or

(ii)  To vote on or to direct the conduct of the operations or other significant policies of the issuing company.

(2)  Nonvoting shares. Preferred shares, limited partnership shares or interests, or similar interests are not voting securities if:

(i)  Any voting rights associated with the shares or interest are limited solely to the type customarily provided by statute with regard to matters that would significantly and adversely affect the rights or preference of the security or other interest, such as the issuance of additional amounts or classes of senior securities, the modification of the terms of the security or interest, the dissolution of the issuing company, or the payment of dividends by the issuing company when preferred dividends are in arrears;

(ii)  The shares or interest represent an essentially passive investment or financing device and do not otherwise provide the holder with control over the issuing company; and

(iii)  The shares or interest do not entitle the holder, by statute, charter, or in any manner, to select or to vote for the selection of directors, trustees, or partners (or persons exercising similar functions) of the issuing company.

(3)  Class of voting shares. Shares of stock issued by a single issuer are deemed to be the same class of voting shares, regardless of differences in dividend rights or liquidation preference, if the shares are voted together as a single class on all matters for which the shares have voting rights other than matters described in paragraph (o)(2)(i) of this section that affect solely the rights or preferences of the shares.

(r)  Well-capitalized--(1)  Bank holding company. In the case of a bank holding company,2 well-capitalized means that:

(i)  On a consolidated basis, the bank holding company maintains a total risk-based capital ratio of 10.0 percent or greater, as defined in 12 CFR 217.10;3

(ii)  On a consolidated basis, the bank holding company maintains a tier 1 risk-based capital ratio of 6.0 percent or greater, as defined in 12 CFR 217.10;4 and

(iii)  The bank holding company is not subject to any written agreement, order, capital directive, or prompt corrective action directive issued by the Board to meet and maintain a specific capital level for any capital measure.

(2)  Insured and uninsured depository institution--(i)  Insured depository institution. In the case of an insured depository institution, "well capitalized" means that the institution has and maintains at least the capital levels required to be well capitalized under the capital adequacy regulations or guidelines applicable to the institution that have been adopted by the appropriate Federal banking agency for the institution under section 38 of the Federal Deposit Insurance Act (12 U.S.C. 1831o).

(ii)  Uninsured depository institution. In the case of a depository institution the deposits of which are not insured by the Federal Deposit Insurance Corporation, "well capitalized" means that the institution has and maintains at least the capital levels required for an insured depository institution to be well capitalized.

(3)  Foreign banks--(i)  Standards applied. For purposes of determining whether a foreign banking organization qualifies under paragraph (r)(1) of this section:

(A)  A foreign banking organization whose home country supervisor, as defined in § 211.21 of the Board's Regulation K (12 CFR 211.21), has adopted capital standards consistent in all respects with the Capital Accord of the Basle Committee on Banking Supervision (Basle Accord) may calculate its capital ratios under the home country standard; and

(B)  A foreign banking organization whose home country supervisor has not adopted capital standards consistent in all respects with the Basle Accord shall obtain a determination from the Board that its capital is equivalent to the capital that would be required of a U.S. banking organization under paragraph (r)(1) of this section.

(ii)  Branches and agencies. For purposes of determining, under paragraph (r)(1) of this section, whether a branch or agency of a foreign banking organization is well-capitalized, the branch or agency shall be deemed to have the same capital ratios as the foreign banking organization.

(s)  Well managed--(1)  In general. Except as otherwise provided in this part, a company or depository institution is well managed if:

(i)  At its most recent inspection or examination or subsequent review by the appropriate Federal banking agency for the company or institution (or the appropriate state banking agency in an examination described in section 10(d) of the Federal Deposit Insurance Act (12 U.S.C. 1820(d)), the company or institution received:

(A)  At least a satisfactory composite rating; and

(B)  At least a satisfactory rating for management, if such rating is given.

(ii)  In the case of a company or depository institution that has not received an inspection or examination rating, the Board has determined, after a review of the managerial and other resources of the company or depository institution and after consulting with the appropriate Federal and state banking agencies, as applicable, for the company or institution, that the company or institution is well managed.

(2)  Merged depository institutions--(i)  Merger involving well managed institutions. A depository institution that results from the merger of two or more depository institutions that are well managed shall be considered to be well managed unless the Board determines otherwise after consulting with the appropriate Federal and state banking agencies, as applicable, for each depository institution involved in the merger.

(ii)  Merger involving a poorly rated institution.  A depository institution that results from the merger of a depository institution that is well managed with one or more depository institutions that are not well managed or have not been examined shall be considered to be well managed if the Board determines, after a review of the managerial and other resources of the resulting depository institution and after consulting with the appropriate Federal and state banking agencies for the institutions involved in the merger, as applicable, that the resulting institution is well managed.

(3)  Foreign banking organizations.  Except as otherwise provided in this part, a foreign banking organization is considered well managed if the combined operations of the foreign banking organization in the United States have received at least a satisfactory composite rating at the most recent annual assessment.

(t)  Depository institution.  For purposes of this part, the term "depository institution" has the same meaning as in section 3(c) of the Federal Deposit Insurance Act (12 U.S.C. 1813(c)).

[Codified to 12 C.F.R. § 225.2]

[Section 225.2 amended at 53 Fed. Reg. 37744, September 28, 1988; 54 Fed. Reg. 37302, September 8, 1989, effective October 10, 1989; 57 Fed. Reg. 41387, September 10, 1992; 58 Fed. Reg. 473, January 6, 1993, effective February 4, 1993; 58 Fed. Reg. 4074, January 13, 1993, effective February 4, 1993; 61 Fed. Reg. 56407, November 1, 1996, effective October 23, 1996; 62 Fed. Reg. 9320, February 28, 1997, effective April 21, 1997; 65 Fed. Reg. 3791, January 25, 2000; 65 Fed. Reg. 15055, March 21, 2000, effective March 21, 2000; 66 Fed. Reg. 414, January 3, 2001, effective February 2, 2001; 71 Fed. Reg. 9901, February 28, 2006, effective March 30, 2006; 78 Fed. Reg. 62290, October 11, 2013, effective January 1, 2014]

§ 225.3  Administration.

(a)  Delegation of authority.  Designated Board members and officers and the Federal Reserve Banks are authorized by the Board to exercise various functions prescribed in this regulation and in the Board's Rules Regarding Delegation of Authority (12 CFR Part 265) and the Board's Rules of Procedure (12 CFR Part 262).

(b)  Appropriate Federal Reserve Bank.  In administering this regulation, unless a different Federal Reserve Bank is designated by the board, the appropriate Federal Reserve Bank is as follows:

(1) For a bank holding company (or a company applying to become a bank holding company): the Reserve Bank of the Federal Reserve district in which the company's banking operations are principally conducted, as measured by total domestic deposits in its subsidiary banks on the date it became (or will become) a bank holding company;

(2)  For a foreign banking organization that has no subsidiary bank and is not subject to paragraph (b)(1) of this section: the Reserve Bank of the Federal Reserve district in which the total assets of the organization's United States branches, agencies, and commercial lending companies are the largest as of the later of January 1, 1980, or the date it becomes a foreign banking organization;

(3)  For an individual or company submitting a notice under subpart E of this part: the Reserve Bank of the Federal Reserve district in which the banking operations of the bank holding company or State member bank to be acquired are principally conducted, as measured by total domestic deposits on the date the notice is filed.

[Codified to 12 C.F.R. § 225.3]

[Section 225.3 amended at 62 Fed. Reg. 9321, February 28, 1997, effective April 21, 1997]

§ 225.4  Corporate practices.

(a)  Bank holding company policy and operations.  (1) A bank holding company shall serve as a source of financial and managerial strength to its subsidiary banks and shall not conduct its operations in an unsafe or unsound manner.

(2)  Whenever the Board believes an activity of a bank holding company or control of a nonbank subsidiary (other than a nonbank subsidiary of a bank) constitutes a serious risk to the financial safety, soundness, or stability of a subsidiary bank of the bank holding company and is inconsistent with sound banking principles or the purposes of the BHC Act or the Financial Institutions Supervisory Act of 1966, as amended (12 U.S.C. 1818(b) et seq.), the Board may require the bank holding company to terminate the activity or to terminate control of the subsidiary, as provided in section 5(e) of the BHC Act.

(b)  Purchase or redemption by a bank holding company of its own securities--(1)  Filing notice.  Except as provided in paragraph (b)(6) of this section, a bank holding company shall give the Board prior written notice before purchasing or redeeming its equity securities if the gross consideration for the purchase or redemption, when aggregated with the net consideration paid by the company for all such purchases or redemptions during the preceding 12 months, is equal to 10 percent or more of the company's consolidated net worth. For the purposes of this section, "net consideration" is the gross consideration paid by the company for all of its equity securities purchased or redeemed during the period minus the gross consideration received for all of its equity securities sold during the period.

(2)  Contents of notice.  Any notice under this section shall be filed with the appropriate Reserve Bank and shall contain the following information:

(i)  The purpose of the transaction, a description of the securities to be purchased or redeemed, the total number of each class outstanding, the gross consideration to be paid, and the terms and sources of funding for the transaction;

(ii)  A description of all equity securities redeemed within the preceding 12 months, the net consideration paid, and the terms of any debt incurred in connection with those transactions; and

(iii)(A)  If the bank holding company has consolidated assets of $500 million or more, consolidated pro forma risk-based capital and leverage ratio calculations for the bank holding company as of the most recent quarter, and, if the redemption is to be debt funded, a parent-only pro forma balance sheet as of the most recent quarter; or

(B)  If the bank holding company has consolidated assets of less than $500 million, a pro forma parent-only balance sheet as of the most recent quarter, and, if the redemption is to be debt funded, one-year income statement and cash flow projections.

(3)  Acting on notice.  Within 15 calendar days of receipt of a notice under this section, the appropriate Reserve Bank shall either approve the transaction proposed in the notice or refer the notice to the Board for decision. If the notice is referred to the Board for decision, the Board shall act on the notice within 30 calendar days after the Reserve Bank receives the notice.

(4)  Factors considered in acting on notice. (i)  The Board may disapprove a proposed purchase or redemption if it finds that the proposal would constitute an unsafe or unsound practice, or would violate any law, regulation, Board order, directive, or any condition imposed by, or written agreement with, the Board.

(ii)  In determining whether a proposal constitutes an unsafe or unsound practice, the Board shall consider whether the bank holding company's financial condition, after giving effect to the proposed purchase or redemption, meets the financial standards applied by the Board under section 3 of the BHC Act, including 12 CFR part 217;1 and the Board's Policy Statement for Small Bank Holding Companies (Appendix C of this part).

(5)  Disapproval and hearing. (i)  The Board shall notify the bank holding company in writing of the reasons for a decision to disapprove any proposed purchase or redemption. Within 10 calendar days of receipt of a notice of disapproval by the Board, the bank holding company may submit a written request for a hearing.

(ii)  The Board shall order a hearing within 10 calendar days of receipt of the request if it finds that material facts are in dispute, or if it otherwise appears appropriate. Any hearing conducted under this paragraph shall be held in accordance with the Board's Rules of Practice for Formal Hearings (12 CFR part 263).

(iii)  At the conclusion of the hearing, the Board shall by order approve or disapprove the proposed purchase or redemption on the basis of the record of the hearing.

(6)  Exception for well-capitalized bank holding companies. A bank holding company is not required to obtain prior Board approval for the redemption or purchase of its equity securities under this section provided:

(i)  Both before and immediately after the redemption, the bank holding company is well-capitalized;

(ii)  The bank holding company is well-managed; and

(iii)  The bank holding company is not the subject of any unresolved supervisory issues.

(c)  Deposit insurance.  Every bank that is a bank holding company or a subsidiary of a bank holding company shall obtain federal deposit insurance and shall remain an insured bank as defined in section 3(h) of the Federal Deposit Insurance Act (12 U.S.C. 1813(h)).

(d)  Acting as transfer agent, or clearing agent.  A bank holding company or any nonbanking subsidiary that is a "bank," as defined in section 3(a)(6) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(6)), and that is a transfer agent of securities, a clearing agency, or a participant in a clearing agency (as those terms are defined in section 3(a) of the Securities Exchange Act (15 U.S.C. 78c(a)), shall be subject to §§ 208.31--208.33 of the Board's Regulation H (12 CFR 208.31--208.33) as if it were a state member bank.

(e)   Reporting requirement for credit secured by certain bank holding company stock.   Each executive officer or director of a bank holding company the shares of which are not publicly traded shall report annually to the board of directors of the bank holding company the outstanding amount of any credit that was extended to the executive officer or director and that is secured by shares of the bank holding company. For purposes of this paragraph, the terms "executive officer" and "director" shall have the meaning given in § 215.2 of Regulation O (12 CFR 215.2).

(f)  Suspicious Activity Report. A bank holding company or any nonbank subsidiary thereof, or a foreign bank that is subject to the BHC Act or any nonbank subsidiary of such foreign bank operating in the United States, shall file a suspicious activity report in accordance with the provisions of § 208.62 of the Board's Regulation H (12 CFR 208.62).

(g)  Requirements for financial holding companies engaged in securities underwriting, dealing, or market-making activities.  (1)  Any intra-day extension of credit by a bank or thrift, or U.S. branch or agency of a foreign bank to an affiliated company engaged in underwriting, dealing in, or making a market in securities pursuant to section 4(k)(4)(E) of the Bank Holding Company Act (12 U.S.C. 1843(k)(4)(E)) must be on market terms consistent with section 23B of the Federal Reserve Act. (12 U.S.C. 371c--1).

(2)  A foreign bank that is or is treated as a financial holding company under this part shall ensure that:

(i)  Any extension of credit by any U.S. branch or agency of such foreign bank to an affiliated company engaged in underwriting, dealing in, or making a market in securities pursuant to section 4(k)(4)(E) of the Bank Holding Company Act (12 U.S.C. 1843(k)(4)(E)), conforms to sections 23A and 23B of the Federal Reserve Act (12 U.S.C. 371c and 371c--1) as if the branch or agency were a member bank;

(ii)  Any purchase by any U.S. branch or agency of such foreign bank, as principal or fiduciary, of securities for which a securities affiliate described in paragraph (g)(2)(i) of this section is a principal underwriter conforms to sections 23A and 23B of the Federal Reserve Act (12 U.S.C. 371c and 371c--1) as if the branch or agency were a member bank; and

(iii)  Its U.S. branches and agencies not advertise or suggest that they are responsible for the obligations of a securities affiliate described in paragraph (g)(2)(i) of this section, consistent with section 23B(c) of the Federal Reserve Act (12 U.S.C. 371c--1(c)) as if the branches or agencies were member banks.

(h)  Protection of customer information and consumer information. A bank holding company shall comply with the Interagency Guidelines Establishing Information Security Standards, as set forth in appendix F of this part, prescribed pursuant to sectons 501 and 505 of the Gramm-Leach-Bliley Act (15 U.S.C. 6801 and 6805). A bank holding company shall properly dispose of consumer information in accordance with the rules set forth at 16 CFR part 682.

[Codified to 12 C.F.R. § 225.4]

[Section 225.4 amended at 55 Fed. Reg. 47743, November 15, 1990, effective December 18, 1990; 57 Fed. Reg. 22426, May 28, 1992, effective May 18, 1992; 58 Fed. Reg. 47209, September 8, 1993, effective October 8, 1993; 59 Fed. Reg. 22968, May 4, 1994; 59 Fed. Reg. 39679, August 4, 1994, effective September 2, 1994; 61 Fed. Reg. 4344, February 5, 1996, effective April 1, 1996; 62 Fed. Reg. 9322, February 28, 1997, effective April 21, 1997; 63 Fed. Reg. 58621 November 2, 1998; 65 Fed. Reg. 14442, March 17, 2000, effective March 11, 2000; 66 Fed. Reg. 8636, February 1, 2001, effective July 1, 2001; 69 Fed. Reg. 77618, December 28, 2004, effective July 1, 2005; 71 Fed. Reg. 9901, February 28, 2006, effective March 30, 2006; 78 Fed. Reg. 62290, October 11, 2013, effective January 1, 2014]

§ 225.5  Registration, reports, and inspections.

(a)  Registration of bank holding companies.   Each company shall register within 180 days after becoming a bank holding company by furnishing information in the manner and form prescribed by the Board. A company that receives the Board's prior approval undersubpart B of this part to become a bank holding company may complete this registration requirement through submission of its first annual report to the Board as required by paragraph (b) of this section.

(b)  Reports of bank holding companies.  Each bank holding company shall furnish, in the manner and form prescribed by the Board, an annual report of the company's operations for the fiscal year in which it becomes a bank holding company, and for each fiscal year during which it remains a bank holding company. Additional information and reports shall be furnished as the Board may require.

(c)  Examinations and inspections.  The Board may examine or inspect any bank holding company and each of its subsidiaries and prepare a report of their operations and activities. With respect to a foreign banking organization, the Board may also examine any branch or agency of a foreign bank in any state of the United States and may examine or inspect each of the organization's subsidiaries in the United States and prepare reports of examination made by the primary federal or state supervisor of the subsidiary bank of a bank holding company or of the branch or agency of the foreign bank.

[Codified to 12 C.F.R. § 225.5]

[Section 225.5 amended at 62 Fed. Reg. 9323, February 28, 1997, effective April 21, 1997]

§ 225.6  Penalties for violations.

(a)  Criminal and civil penalties.  (1)  Section 8 of the BHC Act provides criminal penalties for willful violation, and civil penalties for violation, by any company or individual of the BHC Act or any regulation or order issued under it, or for making a false entry in any book, report, or statement of a bank holding company.

(2)  Civil money penalty assessments for violations of the BHC Act shall be made in accordance with subpart B of the Board's Rules of Practice for Hearings (12 CFR 263, subpart C). For any willful violation of the Bank Control Act or any regulation or order issued under it, the Board may assess a civil penalty as provided in 12 U.S.C. 1817(j)(15).

(b)  Cease and desist proceedings.  For any violation of the BHC Act, the Bank Control Act, this regulation, or any order or notice issued thereunder, the Board may institute a cease and desist proceeding in accordance with the Financial Institutions Supervisory Act of 1966, as amended (12 U.S.C. 1818(b) et seq.).

[Codified to 12 C.F.R. § 225.6]

[Section 225.6 amended at 62 Fed. Reg. 9323, February 28, 1997, effective April 21, 1997]

§ 225.7 Exceptions to tying restrictions.

(a)  Purpose. This section establishes exceptions to the anti-tying restrictions of section 106 of the Bank Holding Company Act Amendments of 1970 (12 U.S.C. 1971, 1972(1)). These exceptions are in addition to those in section 106. The section also restricts tying of electronic benefit transfer services by bank holding companies and their nonbank subsidiaries.

(b)  Exceptions to statute. Subject to the limitations of paragraph (c) of this section, a bank may:

(1)  Extension to affiliates of statutory exceptions preserving traditional banking relationships. Extend credit, lease or sell property of any kind, or furnish any service, or fix or vary the consideration for any of the foregoing, on the condition or requirement that a customer:

(i)  Obtain a loan, discount, deposit, or trust service from an affiliate of the bank; or

(ii)  Provide to an affiliate of the bank some additional credit, property, or service that the bank could require to be provided to itself pursuant to section 106(b)(1)(C) of the Bank Holding Company Act Amendments of 1970 (12 U.S.C. 1972(1)(C)).

(2)  Safe harbor for combined-balance discounts. Vary the consideration for any product or package of products based on a customer's maintaining a combined minimum balance in certain products specified by the bank (eligible products), if:

(i)  The bank offers deposits, and all such deposits are eligible products; and

(ii)  Balances in deposits count at least as much as nondeposit products toward the minimum balance.

(3)  Safe harbor for foreign transactions. Engage in any transaction with a customer if that customer is:

(i)  A corporation, business, or other person (other than an individual) that:

(A)  Is incorporated, chartered, or otherwise organized outside the United States; and

(B)  Has its principal place of business outside the United States; or

(ii)  An individual who is a citizen of a foreign country and is not resident in the United States.

(c)  Limitations on exceptions. Any exception granted pursuant to this section shall terminate upon a finding by the Board that the arrangement is resulting in anti-competitive practices. The eligibility of a bank to operate under any exception granted pursuant to this section shall terminate upon a finding by the Board that its exercise of this authority is resulting in anti-competitive practices.

(d)  Extension of statute to electronic benefit transfer services. A bank holding company or nonbank subsidiary of a bank holding company that provides electronic benefit transfer services shall be subject to the anti-tying restrictions applicable to such services set forth in section 7(i)(11) of the Food Stamp Act of 1977 (7 U.S.C. 2016(i)(11)).

(e)  For purposes of this section, bank has the meaning given that term in section 106(a) of the Bank Holding Company Act Amendments of 1970 (12 U.S.C. 1971), but shall also include a United States branch, agency, or commercial lending company subsidiary of a foreign bank that is subject to section 106 pursuant to section 8(d) of the International Banking Act of 1978 (12 U.S.C. 3106(d)), and any company made subject to section 106 by section 4(f)(9) or 4(h) of the BHC Act.

[Codified to 12 C.F.R. § 225.7]

[Section 225.7 added at 59 Fed. Reg. 39679, August 4, 1994, effective September 2, 1994; 59 Fed. Reg. 65474, December 20, 1994, effective January 23, 1995; amended at 60 Fed. Reg. 20189, April 25, 1995, effective May 26, 1995; 62 Fed. Reg. 9323, February 28, 1997, effective April 21, 1997]

§ 225.8  Capital planning.

(a)  Purpose. This section establishes capital planning and prior notice and approval requirements for capital distributions by certain bank holding companies.

(b)  Scope and effective date. (1)  This section applies to every top-tier bank holding company domiciled in the United States:

(i)  With average total consolidated assets of $50 billion or more. Average total consolidated assets means the average of the total consolidated assets as reported by a bank holding company on its Consolidated Financial Statements for Bank Holding Companies (FR Y--9C) for the four most recent consecutive quarters. If the bank holding company has not filed the FR Y--9C for each of the four most recent consecutive quarters, average total consolidated assets means the average of the company's total consolidated assets, as reported on the company's FR Y--9C, for the most recent quarter or consecutive quarters. Average total consolidated assets are measured on the as-of date of the most recent FR Y--9C used in the calculation of the average; or

(ii)  That is subject to this section, in whole or in part, by order of the Board based on the institution's size, level of complexity, risk profile, scope of operations, or financial condition.

(2)  Beginning on December 23, 2011, the provisions of this section shall apply to any bank holding company that is subject to this section pursuant to paragraph (b)(1), provided that:

(i)  Until July 21, 2015, this section will not apply to any bank holding company subsidiary of a foreign banking organization that is currently relying on Supervision and Regulation Letter SR 01--01 issued by the Board (as in effect on May 19, 2010); and

(ii)  A bank holding company that becomes subject to this section pursuant to paragraph (b)(1)(i) after the 5th of January of a calendar year shall not be subject to the requirements of paragraphs (d)(1)(ii), (d)(4), and (f)(1)(iii) of this section until January 1 of the next calendar year.

(3)  Notwithstanding any other requirement in this section, for a given capital plan cycle:

(i)  Until October 1, 2015, a bank holding company's estimates of its pro forma regulatory capital ratios and its pro forma tier 1 common ratio over the planning horizon shall not include estimates using the advanced approaches; and

(ii)  Beginning October 1, 2015, for a given capital plan cycle (including for purposes of the January 5 submission of a capital plan under paragraph (d)(1) of this section and any resubmission of the capital plan under paragraph (d)(4) of this section during the capital plan cycle), a bank holding company's estimates of its pro forma regulatory capital ratios and its pro forma tier 1 common ratio over the planning horizon shall not include estimates using the advanced approaches if the bank holding company is notified on or after the first day of that capital plan cycle (October 1) that the bank holding company is required to calculate its risk-based capital requirements using the advanced approaches.

(4)  Nothing in this section shall limit the authority of the Federal Reserve to issue a capital directive or take any other supervisory or enforcement action, including action to address unsafe or unsound practices or conditions or violations of law.

(c)  Definitions. For purposes of this section, the following definitions apply:

(1)  Advanced approaches means the risk-weighted assets calculation methodologies at 12 CFR part 217, subpart E, as applicable, and any successor regulation.

(2)  Capital action means any issuance of a debt or equity capital instrument, any capital distribution, and any similar action that the Federal Reserve determines could impact a bank holding company's consolidated capital.

(3)  Capital distribution means a redemption or repurchase of any debt or equity capital instrument, a payment of common or preferred stock dividends, a payment that may be temporarily or permanently suspended by the issuer on any instrument that is eligible for inclusion in the numerator of any minimum regulatory capital ratio, and any similar transaction that the Federal Reserve determines to be in substance a distribution of capital.

(4)  Capital plan means a written presentation of a bank holding company's capital planning strategies and capital adequacy process that includes the mandatory elements set forth in paragraph (d)(2) of this section.

(5)  Capital plan cycle means the period beginning on October 1 of a calendar year and ending on September 30 of the following calendar year.

(6)  Capital policy means a bank holding company's written assessment of the principles and guidelines used for capital planning, capital issuance, usage and distributions, including internal capital goals; the quantitative or qualitative guidelines for dividend and stock repurchases; the strategies for addressing potential capital shortfalls; and the internal governance procedures around capital policy principles and guidelines.

(7)  Minimum regulatory capital ratio means any minimum regulatory capital ratio that the Federal Reserve may require of a bank holding company, by regulation or order, including, as applicable, the bank holding company's tier 1 and supplementary leverage ratios and common equity tier 1, tier 1, and total risk-based capital ratios as calculated under appendices A, D, and E to this part (12 CFR part 225) and 12 CFR part 217, as applicable, including the transition provisions at 12 CFR 217.1(f)(4) and 12 CFR 217.300, or any successor regulation.

(8)  Planning horizon means the period of at least nine quarters, beginning with the quarter preceding the quarter in which the bank holding company submits its capital plan, over which the relevant projections extend.

(9)  Tier 1 capital has the same meaning as under appendix A to this part or under 12 CFR part 217, as applicable, or any successor regulation.

(10)  Tier 1 common capital means tier 1 capital as defined under appendix A to this part less the non-common elements of tier 1 capital, including perpetual preferred stock and related surplus, minority interest in subsidiaries, trust preferred securities and mandatory convertible preferred securities.

(11)  Tier 1 common ratio means the ratio of a bank holding company's tier 1 common capital to total risk-weighted assets as defined under appendices A and E to this part.

(d)  General requirements. (1)  Annual capital planning. (i)  A bank holding company must develop and maintain a capital plan.

(ii)  A bank holding company must submit its complete capital plan to the appropriate Reserve Bank and the Board each year by the 5th of January, or such later date as directed by the Board or the appropriate Reserve Bank, with concurrence of the Board.

(iii)  The bank holding company's board of directors or a designated committee thereof must at least annually and prior to submission of the capital plan under paragraph (d)(1)(ii) of this section:

(A)  Review the robustness of the bank holding company's process for assessing capital adequacy,

(B)  Ensure that any deficiencies in the bank holding company's process for assessing capital adequacy are appropriately remedied; and

(C)  Approve the bank holding company's capital plan.

(2)  Mandatory elements of capital plan. A capital plan must contain at least the following elements:

(i)  An assessment of the expected uses and sources of capital over the planning horizon that reflects the bank holding company's size, complexity, risk profile, and scope of operations, assuming both expected and stressful conditions, including:

(A)  Estimates of projected revenues, losses, reserves, and pro forma capital levels, including any minimum regulatory capital ratios (for example, leverage, tier 1 risk-based, and total risk-based capital ratios) and any additional capital measures deemed relevant by the bank holding company, over the planning horizon under expected conditions and under a range of stressed scenarios, including any scenarios provided by the Federal Reserve and at least one stressed scenario developed by the bank holding company appropriate to its business model and portfolios;

(B)  A calculation of the pro forma tier 1 common ratio over the planning horizon under expected conditions and under a range of stressed scenarios and discussion of how the company will maintain a pro forma tier 1 common ratio above 5 percent under expected conditions and the stressed scenarios required under paragraphs (d)(2)(i)(A) and (ii) of this section;

(C)  A discussion of the results of any stress test required by law or regulation, and an explanation of how the capital plan takes these results into account; and

(D)  A description of all planned capital actions over the planning horizon.

(ii)  A detailed description of the bank holding company's process for assessing capital adequacy, including:

(A)  A discussion of how the bank holding company will, under expected and stressful conditions, maintain capital commensurate with its risks, maintain capital above the

1Code of Federal Regulations, title 12, chapter II, part 225. Go back to Text

2For purposes of this subpart and subparts B and C of this part, a bank holding company with consolidated assets under $500 million that is subject to the Small Bank Holding Company Policy Statement in Appendix C of this part will be deemed to be "well-capitalized" if the bank holding company meets the requirements for expedited/waived processing in Appendix C. Go back to Text

3Before January 1, 2015, the total risk-based capital ratio of a bank holding company that is not an advanced approaches bank holding company (as defined in 12 CFR 217.100(b)(1)) is calculated in accordance with appendix A to this part. Go back to Text

4Before January 1, 2015, the tier 1 risk-based capital ratio of a bank holding company that is not an advanced approaches bank holding company (as defined in 12 CFR 217.100(b)(1)) is calculated in accordance with appendix A to this part. Go back to Text

1Before January 1, 2015, the Board will consider the financial standards at 12 CFR part 225 appendices A, C, and E for a bank holding company that is not an advanced approaches bank holding company. Go back to Text


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