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7500 - FRB Regulations


Subpart I—Financial Holding Companies

§ 225.81  What is a financial holding company?

(a)  Definition. A financial holding company is a bank holding company that meets the requirements of this section.

(b)  Requirements to be a financial holding company. In order to be a financial holding company:

(1)  All depository institutions controlled by the bank holding company must be and remain well capitalized;

(2)  All depository institutions controlled by the bank holding company must be and remain well managed; and

(3)  The bank holding company must have made an effective election to become a financial holding company.

(c)  Requirements for foreign banks that are or are owned by bank holding companies--(1)  Foreign banks with U.S. branches or agencies that also own U.S. banks.  A foreign bank that is a bank holding company and that operates a branch or agency or owns or controls a commercial lending company in the United States must comply with the requirements of this section, § 225.82, and §§ 225.90 through 225.92 in order to be a financial holding company. After it becomes a financial holding company, a foreign bank described in this paragraph will be subject to the provisions of §§ 225.83, 225.84, 225.93, and 225.94.

(2)  Bank holding companies that own foreign banks with U.S. branches or agencies.  A bank holding company that owns a foreign bank that operates a branch or agency or owns or controls a commercial lending company in the United States must comply with the requirements of this section, § 225.82, and §§ 225.90 through 225.92 in order to be a financial holding company. After it becomes a financial holding company, a bank holding company described in this paragraph will be subject to the provisions of §§ 225.83, 225.84, 225.93, and 225.94.

[Codified to 12 C.F.R. § 225.81]

[Section 225.81 added at 65 Fed. Reg. 3791, January 25, 2000; amended at 65 Fed. Reg. 15055, March 21, 2000, effective March 15, 2000; 66 Fed. Reg. 415, January 3, 2001, effective February 2, 2001]

§ 225.82  How does a bank holding company elect to become a financial holding company?

(a)  Filing requirement. A bank holding company may elect to become a financial holding company by filing a written declaration with the appropriate Reserve Bank. A declaration by a bank holding company is considered to be filed on the date that all information required by paragraph (b) of this section is received by the appropriate Reserve Bank.

(b)  Contents of declaration.  To be deemed complete, a declaration must:

(1)  State that the bank holding company elects to be a financial holding company;

(2)  Provide the name and head office address of the bank holding company and of each depository institution controlled by the bank holding company;

(3)  Certify that each depository institution controlled by the bank holding company is well capitalized as of the date the bank holding company submits its declaration;

(4)  Provide the capital ratios as of the close of the previous quarter for all relevant capital measures, as defined in section 38 of the Federal Deposit Insurance Act (12 U.S.C. 1831o), for each depository institution controlled by the company on the date the company submits its declaration; and

(5)  Certify that each depository institution controlled by the company is well managed as of the date the company submits its declaration.

(c)  Effectiveness of election.  An election by a bank holding company to become a financial holding company shall not be effective if, during the period provided in paragraph (e) of this section, the Board finds that, as of the date the declaration was filed with the appropriate Reserve Bank:

(1)  Any insured depository institution controlled by the bank holding company (except an institution excluded under paragraph (d) of this section) has not achieved at least a rating of "satisfactory record of meeting community credit needs" under the Community Reinvestment Act at the institution's most recent examination; or

(2)  Any depository institution controlled by the bank holding company is not both well capitalized and well managed.

(d)  Consideration of the CRA performance of a recently acquired insured depository institution.  Except as provided in paragraph (f) of this section, an insured depository institution will be excluded for purposes of the review of the Community Reinvestment Act rating provisions of paragraph (c)(1) of this section if:

(1)  The bank holding company acquired the insured depository institution during the 12-month period preceding the filing of an election under paragraph (a) of this section;

(2)  The bank holding company has submitted an affirmative plan to the appropriate Federal banking agency for the institution to take actions necessary for the institution to achieve at least a rating of "satisfactory record of meeting community credit needs" under the Community Reinvestment Act at the next examination of the institution; and

(3)  The appropriate Federal banking agency for the institution has accepted the plan described in paragraph (d)(2) of this section.

(e)  Effective date of election--(1)  In general.  An election filed by a bank holding company under paragraph (a) of this section is effective on the 31st calendar day after the date that a complete declaration was filed with the appropriate Reserve Bank, unless the Board notifies the bank holding company prior to that time that the election is ineffective.

(2)  Earlier notification that an election is effective.  The Board or the appropriate Reserve Bank may notify a bank holding company that its election to become a financial holding company is effective prior to the 31st day after the date that a complete declaration was filed with the appropriate Reserve Bank. Such a notification must be in writing.

(f)  Requests to become a financial holding company submitted as part of an application to become a bank holding company--(1)  In general.  A company that is not a bank holding company and has applied for the Board's approval to become a bank holding company under section 3(a)(1) of the BHC Act (12 U.S.C. 1842(a)(1)) may as part of that application submit a request to become a financial holding company.

(2)  Contents of request.  A request to become a financial holding company submitted as part of an application to become a bank holding company must:

(i)  State that the company seeks to become a financial holding company on consummation of its proposal to become a bank holding company; and

(ii)  Certify that each depository institution that would be controlled by the company on consummation of its proposal to become a bank holding company will be both well capitalized and well managed as of the date the company consummates the proposal.

(3)  Request becomes a declaration and an effective election on date of consummation of bank holding company proposal.  A complete request submitted by a company under this paragraph (f) becomes a complete declaration by a bank holding company for purposes of section 4(l) of the BHC Act (12 U.S.C. 1843(l)) and becomes an effective election for purposes of § 225.81(b) on the date that the company lawfully consummates its proposal under section 3 of the BHC Act (12 U.S.C. 1842), unless the Board notifies the company at any time prior to consummation of the proposal and that:

(i)  Any depository institution that would be controlled by the company on consummation of the proposal will not be both well capitalized and well managed on the date of consummation; or

(ii)  Any insured depository institution that would be controlled by the company on consummation of the proposal has not achieved at least a rating of "satisfactory record of meeting community credit needs" under the Community Reinvestment Act at the institution's most recent examination.

(4)  Limited exclusion for recently acquired institutions not available.  Unless the Board determines otherwise, an insured depository institution that is controlled or would be controlled by the company as part of its proposal to become a bank holding company may not be excluded for purposes of evaluating the Community Reinvestment Act criterion described in this paragraph or in paragraph (d) of this section.

(g)  Board's authority to exercise supervisory authority over a financial holding company.  An effective election to become a financial holding company does not in any way limit the Board's statutory authority under the BHC Act, the Federal Deposit Insurance Act, or any other relevant Federal statute to take appropriate action, including imposing supervisory limitations, restrictions, or prohibitions on the activities and acquisitions of a bank holding company that has elected to become a financial holding company, or enforcing compliance with applicable law.

[Codified to 12 C.F.R. § 225.82]

[Section 225.82 added at 65 Fed. Reg. 3791, January 25, 2000; amended at 66 Fed. Reg. 415, January 3, 2001, effective February 2, 2001]

§ 225.83  What are the consequences of failing to continue to meet applicable capital and management requirements?

(a)  Notice by the Board.  If the Board finds that a financial holding company controls any depository institution that is not well capitalized or well managed, the Board will notify the company in writing that it is not in compliance with the applicable requirement(s) for a financial holding company and identify the area(s) of noncompliance. The Board may provide this notice at any time before or after receiving notice from the financial holding company under paragraph (b) of this section.

(b)  Notification by a financial holding company required--(1)  Notice to Board.  A financial holding company must notify the Board in writing within 15 calendar days of becoming aware that any depository institution controlled by the company has ceased to be well capitalized or well managed. This notification must identify the depository institution involved and the area(s) of noncompliance.

(2)  Triggering events for notice to the Board--(i)  Well capitalized.  A company becomes aware that a depository institution it controls is no longer well capitalized upon the occurrence of any material event that would change the category assigned to the institution for purposes of section 38 of the Federal Deposit Insurance Act (12 U.S.C. 1831o). See 12 CFR 6.3(b)--(c), 208.42(b)--(c), and 325.102(b)--(c).

(ii)  Well managed.  A company becomes aware that a depository institution it controls is no longer well managed at the time the depository institution receives written notice from the appropriate Federal or state banking agency that either its composite rating or its rating for management is not at least satisfactory.

(c)  Execution of agreement acceptable to the Board--(1)  Agreement required; time period.  Within 45 days after receiving a notice from the Board under paragraph (a) of this section, the company must execute an agreement acceptable to the Board to comply with all applicable capital and management requirements.

(2)  Extension of time for executing agreement.  Upon request by a company, the Board may extend the 45-day period under paragraph (c)(1) of this section if the Board determines that granting additional time is appropriate under the circumstances. A request by a company for additional time must include an explanation of why an extension is necessary.

(3)  Agreement requirements.  An agreement required by paragraph (c)(1) of this section to correct a capital or management deficiency must:

(i)  Explain the specific actions that the company will take to correct all areas of noncompliance;

(ii)  Provide a schedule within which each action will be taken;

(iii)  Provide any other information that the Board may require; and

(iv)  Be acceptable to the Board.

(d)  Limitations during period of noncompliance--Until the Board determines that a company has corrected the conditions described in a notice under paragraph (a) of this section:

(1)  The Board may impose any limitations or conditions on the conduct or activities of the company or any of its affiliates as the Board finds to be appropriate and consistent with the purposes of the BHC Act; and

(2)  The company and its affiliates may not commence any additional activity or acquire control of shares of any company under section 4(k) of the BHC Act without prior approval from the Board.

(e)  Consequences of failure to correct conditions within 180 days--(1)  Divestiture of depository institutions.  If a company does not correct the conditions described in a notice under paragraph (a) of this section within 180 days of receipt of the notice or such additional time as the Board may permit, the Board may order the company to divest ownership or control of any depository institution owned or controlled by the company. Such divestiture must be done in accordance with the terms and conditions established by the Board.

(2)  Alternative method of complying with a divestiture order.  A company may comply with an order issued under paragraph (e)(1) of this section by ceasing to engage (both directly and through any subsidiary that is not a depository institution or a subsidiary of a depository institution) in any activity that may be conducted only under section 4(k), (n), or (o) of the BHC Act (12 U.S.C. 1843(k), (n), or (o)). The termination of activities must be completed within the time period referred to in paragraph (e)(1) of this section and in accordance with the terms and conditions acceptable to the Board.

(f)  Consultation with other agencies.  In taking any action under this section, the Board will consult with the relevant Federal and state regulatory authorities.

[Codified to 12 C.F.R. § 225.83]

[Section 225.83 added at 65 Fed. Reg. 3792, January 25, 2000; amended at 66 Fed. Reg. 416, January 3, 2001, effective February 2, 2001]

§ 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?

(a)  Limitations on activities--(1) In general. Upon receiving a notice regarding performance under the Community Reinvestment Act in accordance with paragraph (a)(2) of this section, a financial holding company may not:

(i)  Commence any additional activity under section 4(k) or 4(n) of the BHC Act (12 U.S.C. 1843(k) or (n)); or

(ii)  Directly or indirectly acquire control, including all or substantially all of the assets, of a company engaged in any activity under section 4(k) or 4(n) of the BHC Act (12 U.S.C. 1843(k) or (n)).

(2)  Notification.  A financial holding company receives notice for purposes of this paragraph at the time that the appropriate Federal banking agency for any insured depository institution controlled by the company or the Board provides notice to the institution or company that the institution has received a rating of "needs to improve record of meeting community credit needs" or "substantial noncompliance in meeting community credit needs" in the institution's most recent examination under the Community Reinvestment Act.

(b)  Exceptions for certain activities--(1)  Continuation of investment activities.  The prohibition in paragraph (a) of this section does not prevent a financial holding company from continuing to make investments in the ordinary course of conducting merchant banking activities under section 4(k)(4)(H) of the BHC Act (12 U.S.C. 1843(k)(4)(H)) or insurance company investment activities under section 4(k)(4)(I) of the BHC Act (12 U.S.C. 1843(k)(4)(I)) if:

(i)  The financial holding company lawfully was a financial holding company and commenced the merchant banking activity under section 4(k)(4)(H) of the BHC Act (12 U.S.C. 1843(k)(4)(H)) or the insurance company investment activity under section 4(k)(4)(I) of the BHC Act (12 U.S.C. 1843(k)(4)(I)) prior to the time that an insured depository institution controlled by the financial holding company received a rating below "satisfactory record of meeting community credit needs" under the Community Reinvestment Act; and

(ii)  The Board has not, in the exercise of its supervisory authority, advised the financial holding company that these activities must be restricted.

(2)  Activities that are closely related to banking.  The prohibition in paragraph (a) of this section does not prevent a financial holding company from commencing any additional activity or acquiring control of a company engaged in any activity under section 4(c) of the BHC Act (12 U.S.C. 1843(c)), if the company complies with the notice, approval, and other requirements of that section and section 4(j) of the BHC Act (12 U.S.C. 1843(j)).

(c)  Duration of prohibitions.  The prohibitions described in paragraph (a) of this section shall continue in effect until such time as each insured depository institution controlled by the financial holding company has achieved at least a rating of "satisfactory record of meeting community credit needs" under the Community Reinvestment Act at the most recent examination of the institution.

[Codified to 12 C.F.R. § 225.84]

[Section 225.84 added at 65 Fed. Reg. 3792, January 25, 2000; amended at 66 Fed. Reg. 417, January 3, 2001, effective February 2, 2001]

§ 225.85  Is notice to or approval from the Board required prior to engaging in a financial activity?

(a)  No prior approval required generally--(1)  In general.  A financial holding company and any subsidiary (other than a depository institution or subsidiary of a depository institution) of the financial holding company may engage in any activity listed in § 225.86, or acquire shares or control of a company engaged exclusively in activities listed in § 225.86, without providing prior notice to or obtaining prior approval from the Board unless required under paragraph (c) of this section.

(2)  Acquisitions by a financial holding company of a company engaged in other permissible activities.  In addition to the activities listed in § 225.86, a company acquired or to be acquired by a financial holding company under paragraph (a)(1) of this section may engage in activities otherwise permissible for a financial holding company under this part in accordance with any applicable notice, approval, or other requirement.

(3)  Acquisition by a financial holding company of a company engaged in limited nonfinancial activities--(i)  Mixed acquisitions generally permitted.  A financial holding company may under this subpart acquire more than 5 percent of the outstanding shares of any class of voting securities or control of a company that is not engaged exclusively in activities that are financial in nature, incidental to a financial activity, or otherwise permissible for the financial holding company under section 4(c) of the BHC Act (12 U.S.C. 1843(c)) if:

(A)  The company to be acquired is substantially engaged in activities that are financial in nature, incidental to a financial activity, or otherwise permissible for the financial holding company under section 4(c) of the BHC Act (12 U.S.C. 1843(c));

(B)  The financial holding company complies with the notice requirements of § 225.87, if applicable; and

(C)  The company conforms, terminates, or divests, within 2 years of the date the financial holding company acquires shares or control of the company, all activities that are not financial in nature, incidental to a financial activity, or otherwise permissible for the financial holding company under section 4(c) (12 U.S.C. 1843(c)) of the BHC Act.

(ii)  Definition of "substantially engaged."  Unless the Board determines otherwise, a company will be considered to be "substantially engaged" in activities permissible for a financial holding company for purposes of paragraph (a)(3)(A) of this section if at least 85 percent of the company's consolidated total annual gross revenues is derived from and at least 85 percent of the company's consolidated total assets is attributable to the conduct of activities that are financial in nature, incidental to a financial activity, or otherwise permissible for a financial holding company under section 4(c) of the BHC Act (12 U.S.C. 1843(c)).

(b)  Locations in which a financial holding company may conduct financial activities.  A financial holding company may conduct any activity listed in § 225.86 at any location in the United States or at any location outside of the United States subject to the laws of the jurisdiction in which the activity is conducted.

(c)  Circumstances under which prior notice to the Board is required--(1)  Acquisition of more than 5 percent of the shares of a savings association.  A financial holding company must obtain Board approval in accordance with section 4(j) of the BHC Act (12 U.S.C. 1843(j)) and either § 225.14 or § 225.24, as appropriate, prior to acquiring control or more than 5 percent of the outstanding shares of any class of voting securities of a savings association or of a company that owns, operates, or controls a savings association.

(2)  Supervisory actions.  The Board may, if appropriate in the exercise of its supervisory or other authority, including under § 225.82(g) or § 225.83(d) or other relevant authority, require a financial holding company to provide notice to or obtain approval from the Board prior to engaging in any activity or acquiring shares or control of any company.

[Codified to 12 C.F.R. § 225.85]

[Section 225.85 added at 65 Fed. Reg. 14438, March 17, 2000, effective March 11, 2000; amended at 66 Fed. Reg. 417, January 3, 2001, effective February 2, 2001]

§ 225.86  What activities are permissible for any financial holding company?

The following activities are financial in nature or incidental to a financial activity:

(a)  Activities determined to be closely related to banking.(1)  Any activity that the Board had determined by regulation prior to November 12, 1999, to be so closely related to banking as to be a proper incident thereto, subject to the terms and conditions contained in this part, unless modified by the Board. These activities are listed in § 225.28.

(2)  Any activity that the Board had determined by an order that was in effect on November 12, 1999, to be so closely related to banking as to be a proper incident thereto, subject to the terms and conditions contained in this part and those in the authorizing orders. These activities are:

(i)  Providing administrative and other services to mutual funds (Societe Generale, 84 Federal Reserve Bulletin 680 (1998));

(ii)  Owning shares of a securities exchange (J.P. Morgan & Co, Inc., and UBS AG, 86 Federal Reserve Bulletin 61 (2000));

(iii)  Acting as a certification authority for digital signatures and authenticating the identity of persons conducting financial and nonfinancial transactions (Bayerische Hypo- und Vereinsbank AG, et al., 86 Federal Reserve Bulletin 56 (2000));

(iv)  Providing employment histories to third parties for use in making credit decisions and to depository institutions and their affiliates for use in the ordinary course of business (Norwest Corporation, 81 Federal Reserve Bulletin 732 (1995));

(v)  Check cashing and wire transmission services (Midland Bank, PLC, 76 Federal Reserve Bulletin 860 (1990) (check cashing); Norwest Corporation, 81 Federal Reserve Bulletin 1130 (1995) (money transmission));

(vi) In connection with offering banking services, providing notary public services, selling postage stamps and postage-paid envelopes, providing vehicle registration services, and selling public transportation tickets and tokens (Popular, Inc., 84 Federal Reserve Bulletin 481 (1998)); and

(vii)  Real estate title abstracting (The First National Company, 81 Federal Reserve Bulletin 805 (1995)).

(b)  Activities determined to be usual in connection with the transaction of banking abroad.Any activity that the Board had determined by regulation in effect on November 11, 1999, to be usual in connection with the transaction of banking or other financial operations abroad (see § 211.5(d) of this chapter), subject to the terms and conditions in part 211 and Board interpretations in effect on that date regarding the scope and conduct of the activity. In addition to the activities listed in paragraphs (a) and (c) of this section, these activities are:

(1)  Providing management consulting services, including to any person with respect to nonfinancial matters, so long as the management consulting services are advisory and do not allow the financial holding company to control the person to which the services are provided;

(2)  Operating a travel agency in connection with financial services offered by the financial holding company or others; and

(3)  Organizing, sponsoring, and managing a mutual fund, so long as:

(i)  The fund does not exercise managerial control over the entities in which the fund invests; and

(ii)  The financial holding company reduces its ownership in the fund, if any, to less than 25 percent of the equity of the fund within one year of sponsoring the fund or such additional period as the Board permits.

(c)  Activities permitted under section 4(k)(4) of the BHC Act (12 U.S.C. 1843(k)(4)). Any activity defined to be financial in nature under sections 4(k)(4)(A) through (E), (H) and (I) of the BHC Act (12 U.S.C. 1843(k)(4)(A) through (E), (H) and (I)).

(d)  Activities determined to be financial in nature or incidental to financial activities by the Board--(1)  Acting as a finder--Acting as a finder in bringing together one or more buyers and sellers of any product or service for transactions that the parties themselves negotiate and consummate.

(i)  What is the scope of finder activities?  Acting as a finder includes providing any or all of the following services through any means--

(A)  Identifying potential parties, making inquiries as to interest, introducing and referring potential parties to each other, and arranging contacts between and meetings of interested parties;

(B)  Conveying between interested parties expressions of interest, bids, offers, orders and confirmations relating to a transaction; and

(C)  Transmitting information concerning products and services to potential parties in connection with the activities described in paragraphs (d)(1)(i)(A) and (B) of this section.

(ii)  What are some examples of finder services?  The following are examples of the services that may be provided by a finder when done in accordance with paragraphs (d)(1)(iii) and (iv) of this section. These examples are not exclusive.

(A)  Hosting an electronic marketplace on the financial holding company's Internet web site by providing hypertext or similar links to the web sites of third party buyers or sellers.

(B)  Hosting on the financial holding company's servers the Internet web site of--

(1)  A buyer (or seller) that provides information concerning the buyer (or seller) and the products or services it seeks to buy (or sell) and allows sellers (or buyers) to submit expressions of interest, bids, offers, orders and confirmations relating to such products or services; or

(2)  A government or government agency that provides information concerning the services or benefits made available by the government or government agency, assists persons in completing applications to receive such services or benefits from the government or agency, and allows persons to transmit their applications for services or benefits to the government or agency.

(C)  Operating an Internet web site that allows multiple buyers and sellers to exchange information concerning the products and services that they are willing to purchase or sell, locate potential counterparties for transactions, aggregate orders for goods or services with those made by other parties, and enter into transactions between themselves.

(D)  Operating a telephone call center that provides permissible finder services.

(iii)  What limitations are applicable to a financial holding company acting as a finder?

(A)  A finder may act only as an intermediary between a buyer and a seller.

(B)  A finder may not bind any buyer or seller to the terms of a specific transaction or negotiate the terms of a specific transaction on behalf of a buyer or seller, except that a finder may--

(1)  Arrange for buyers to receive preferred terms from sellers so long as the terms are not negotiated as part of any individual transaction, are provided generally to customers or broad categories of customers, and are made available by the seller (and not by the financial holding company); and

(2)  Establish rules of general applicability governing the use and operation of the finder service, including rules that--

(i)  Govern the submission of bids and offers by buyers and sellers that use the finder service and the circumstances under which the finder service will match bids and offers submitted by buyers and sellers; and

(ii)  Govern the manner in which buyers and sellers may bind themselves to the terms of a specific transaction.

(C)  A finder may not--

(1)  Take title to or acquire or hold an ownership interest in any product or service offered or sold through the finder service;

(2)  Provide distribution services for physical products or services offered or sold through the finder service;

(3)  Own or operate any real or personal property that is used for the purpose of manufacturing, storing, transporting, or assembling physical products offered or sold by third parties; or

(4)  Own or operate any real or personal property that serves as a physical location for the physical purchase, sale or distribution of products or services offered or sold by third parties.

(D)  A finder may not engage in any activity that would require the company to register or obtain a license as a real estate agent or broker under applicable law.

(iv)  What disclosures are required?  A finder must distinguish the products and services offered by the financial holding company from those offered by a third party through the finder service.

(2)  [Reserved]

(e)  Activities permitted under section 4(k)(5) of the Bank Holding Company Act (12 U.S.C. 1843(k)(5)).

(1)  The following types of activities are financial in nature or incidental to a financial activity when conducted pursuant to a determination by the Board under paragraph (e)(2) of this section:

(i)  Lending, exchanging, transferring, investing for others, or safeguarding financial assets other than money or securities;

(ii)  Providing any device or other instrumentality for transferring money or other financial assets; and

(iii)  Arranging, effecting, or facilitating financial transactions for the account of third parties.

(2)  Review of specific activities.

(i)  Is a specific request required?  A financial holding company that wishes to engage on the basis of paragraph (e)(1) of this section in an activity that is not otherwise permissible for a financial holding company must obtain a determination from the Board that the activity is permitted under paragraph (e)(1).

(ii)  Consultation with the Secretary of the Treasury.  After receiving a request under this section, the Board will provide the Secretary of the Treasury with a copy of the request and consult with the Secretary in accordance with section 4(k)(2)(A) of the Bank Holding Company Act (12 U.S.C. 1843(k)(2)(A)).

(iii)  Board action on requests.  After consultation with the Secretary, the Board will promptly make a written determination regarding whether the specific activity described in the request is included in an activity category listed in paragraph (e)(1) of this section and is therefore either financial in nature or incidental to a financial activity.

(3)  What factors will the Board consider?  In evaluating a request made under this section, the Board will take into account the factors listed in section 4(k)(3) of the BHC Act (12 U.S.C. 1843(k)(3)) that it must consider when determining whether an activity is financial in nature or incidental to a financial activity.

(4)  What information must the request contain?  Any request by a financial holding company under this section must be in writing and must:

(i)  Identify and define the activity for which the determination is sought, specifically describing what the activity would involve and how the activity would be conducted; and

(ii)  Provide information supporting the requested determination, including information regarding how the proposed activity falls into one of the categories listed in paragraph (e)(1) of this section and any other information required by the Board concerning the proposed activity.

[Codified to 12 C.F.R. § 225.86]

[Section 225.86 added at 65 Fed. Reg. 14438, March 17, 2000, effective March 11, 2000; amended at 65 Fed. Reg. 80740, December 22, 2000, effective January 22, 2001; 66 Fed. Reg. 260, January 3, 2001, effective January 2, 2001; 66 Fed. Reg. 418, January 3, 2001, effective February 2, 2001; 66 Fed. Reg. 19081, April 13, 2001]

§ 225.87  Is notice to the Board required after engaging in a financial activity?

(a)  Post-transaction notice generally required to engage in a financial activity.  A financial holding company that commences an activity or acquires shares of a company engaged in an activity listed in § 225.86 must notify the appropriate Reserve Bank in writing within 30 calendar days after commencing the activity or consummating the acquisition by using the appropriate form.

(b)  Cases in which notice to the Board is not required--(1)  Acquisitions that do not involve control of a company.  A notice under paragraph (a) of this section is not required in connection with the acquisition of shares of a company if, following the acquisition, the financial holding company does not control the company.

(2)  No additional notice required to engage de novo in any activity for which a financial holding company already has provided notice. After a financial holding company provides the appropriate Reserve Bank with notice that the company is engaged in an activity listed in § 225.86, a financial holding company may, unless otherwise notified by the Board, commence the activity de novo through any subsidiary that the financial holding company is authorized to control without providing additional notice under paragraph (a) of this section.

(3)  Conduct of certain investment activities.  Unless required by paragraph (b)(4) of this section, a financial holding company is not required to provide notice under paragraph (a) of this section of any individual acquisition of shares of a company as part of the conduct by a financial holding company of securities underwriting, dealing, or market making activities as described in section 4(k)(4)(E) of the BHC Act (12 U.S.C. 1843(k)(4)(E)), merchant banking activities conducted pursuant to section 4(k)(4)(H) of the BHC Act (12 U.S.C. 1843(k)(4))(H)), or insurance company investment activities conducted pursuant to section 4(k)(4)(I) of the BHC Act (12 U.S.C. 1843(k)(4)(I)), if the financial holding company previously has notified the Board under paragraph (a) of this section that the company has commenced the relevant securities, merchant banking, or insurance company investment activities, as relevant.

(4)  Notice of large merchant banking or insurance company investments.  Notwithstanding paragraph (b)(1) or (b)(3) of this section, a financial holding company must provide notice under paragraph (a) of the section if:

(i)  As part of a merchant banking activity conducted under section 4(k)(4)(H) of the BHC Act (12 U.S.C. 1843(k)(4)(H)), the financial holding company acquires more than 5 percent of the shares, assets, or ownership interests of any company at a total cost that exceeds the lesser of 5 percent of the financial holding company's Tier 1 capital or $200 million;

(ii)  As part of an insurance company investment activity conducted under section 4(k)(4)(I) of the BHC Act (12 U.S.C. 1843(k)(4)(I)), the financial holding company acquires more than 5 percent of the shares, assets, or ownership interests of any company at a total cost that exceeds the lesser of 5 percent of the financial holding company's Tier 1 capital or $200 million; or

(iii)  The Board in the exercise of its supervisory authority notifies the financial holding company that a notice is necessary.

[Codified to 12 C.F.R. § 225.87]

[Section 225.87 added at 65 Fed. Reg. 14439, March 17, 2000, effective March 11, 2000; amended at 66 Fed. Reg. 418, January 3, 2001, effective February 2, 2001]

§ 225.88  How to request the Board to determine that an activity is financial in nature or incidental to a financial activity?

(a)  Requests regarding activities that may be financial in nature or incidental to a financial activity.  A financial holding company or other interested party may request a determination from the Board that an activity not listed in § 225.86 is financial in nature or incidental to a financial activity.

(b)  Required information.  A request submitted under this section must be in writing and must:

(1)  Identify and define the activity for which the determination is sought, specifically describing what the activity would involve and how the activity would be conducted;

(2)  Explain in detail why the activity should be considered financial in nature or incidental to a financial activity; and

(3)  Provide information supporting the requested determination and any other information required by the Board concerning the proposed activity.

(c)  Board procedures for reviewing requests--(1)  Consultation with the Secretary of the Treasury.  Upon receipt of the request, the Board will provide the Secretary of the Treasury a copy of the request and consult with the Secretary in accordance with section 4(k)(2)(A) of the BHC Act (12 U.S.C. 1843(k)(2)(A)).

(2)  Public notice.  The Board may, as appropriate and after consultation with the Secretary, publish a description of the proposal in the Federal Register with a request for public comment.

(d)  Board action.  The Board will endeavor to make a decision on any request filed under paragraph (a) of this section within 60 calendar days following the completion of both the consultative process described in paragraph (c)(1) of this section and the public comment period, if any.

(e)  Advisory opinions regarding scope of financial activities--(1)  Written request.  A financial holding company or other interested party may request an advisory opinion from the Board about whether a specific proposed activity falls within the scope of an activity listed in § 225.86 as financial in nature or incidental to a financial activity. The request must be submitted in writing and must contain:

(i)  A detailed description of the particular activity in which the company proposes to engage or the product or service the company proposes to provide;

(ii)  An explanation supporting an interpretation regarding the scope of the permissible financial activity; and

(iii)  Any additional information requested by the Board regarding the activity.

(2)  Board response.  The Board will provide an advisory opinion within 45 calendar days of receiving a complete written request under paragraph (e)(1) of this section.

[Codified to 12 C.F.R. § 225.88]

[Section 225.88 added at 65 Fed. Reg. 14439, March 17, 2000, effective March 11, 2000; amended at 66 Fed. Reg. 419, January 3, 2001, effective February 2, 2001]

§ 225.89  How to request approval to engage in an activity that is complementary to a financial activity?

(a)  Prior Board approval is required.  A financial holding company that seeks to engage in or acquire more than 5 percent of the outstanding shares of any class of voting securities of a company engaged in an activity that the financial holding company believes is complementary to a financial activity must obtain prior approval from the Board in accordance with section 4(j) of the BHC Act (12 U.S.C. 1843(j)). The notice must be in writing and must:

(1)  Identify and define the proposed complementary activity, specifically describing what the activity would involve and how the activity would be conducted;

(2)  Identify the financial activity for which the proposed activity would be complementary and provide detailed information sufficient to support a finding that the proposed activity should be considered complementary to the identified financial activity;

(3)  Describe the scope and relative size of the proposed activity, as measured by the percentage of the projected financial holding company revenues expected to be derived from and assets associated with conducting the activity;

(4)  Discuss the risks that conducting the activity may reasonably be expected to pose to the safety and soundness of the subsidiary depository institutions of the financial holding company and to the financial system generally;

(5)  Describe the potential adverse effects, including potential conflicts of interest, decreased or unfair competition, or other risks, that conducting the activity could raise, and explain the measures the financial holding company proposes to take to address those potential effects;

(6)  Describe the potential benefits to the public, such as greater convenience, increased competition, or gains in efficiency, that the proposal reasonably can be expected to produce; and

(7)  Provide any information about the financial and managerial resources of the financial holding company and any other information requested by the Board.

(b)  Factors for consideration by the Board.  In evaluating a notice to engage in a complementary activity, the Board must consider whether:

(1)  The proposed activity is complementary to a financial activity;

(2)  The proposed activity would pose a substantial risk to the safety or soundness of depository institutions or the financial system generally; and

(3)  The proposal could be expected to produce benefits to the public that outweigh possible adverse effects.

(c)  Board action.  The Board will inform the financial holding company in writing of the Board's determination regarding the proposed activity within the period described in section 4(j) of the BHC Act (12 U.S.C. 1843(j)).

[Codified to 12 C.F.R. § 225.89]

[Section 225.89 added at 65 Fed. Reg. 14440, March 17, 2000, effective March 11, 2000; amended at 66 Fed. Reg. 419, January 3, 2001, effective February 2, 2001]

§ 225.90  What are the requirements for a foreign bank to be treated as a financial holding company?

(a)  Foreign banks as financial holding companies.  A foreign bank that operates a branch or agency or owns or controls a commercial lending company in the United States, and any company that owns or controls such a foreign bank, will be treated as a financial holding company if:

(1)  The foreign bank, any other foreign bank that maintains a U.S. branch, agency, or commercial lending company and is controlled by the foreign bank or company, and any U.S. depository institution subsidiary that is owned or controlled by the foreign bank or company, is and remains well capitalized and well managed; and

(2)  The foreign bank, and any company that owns or controls the foreign bank, has made an effective election to be treated as a financial holding company under this subpart.

(b)  Standards for "well capitalized."  A foreign bank will be considered "well capitalized" if either:

(1)(i)  Its home country supervisor, as defined in § 211.21 of the Board's Regulation K (12 CFR 211.21), has adopted risk-based capital standards consistent with the Capital Accord of the Basel Committee on Banking Supervision (Basel Accord);

(ii)  The foreign bank maintains a Tier 1 capital to total risk-based assets ratio of 6 percent and a total capital to total risk-based assets ratio of 10 percent, as calculated under its home country standard; and

(iii)  The foreign bank's capital is comparable to the capital required for a U.S. bank owned by a financial holding company; or

(2)  The foreign bank has obtained a determination from the Board under § 225.91(c) that the foreign bank's capital is otherwise comparable to the capital that would be required of a U.S. bank owned by a financial holding company.

(c)  Standards for "well managed."  A foreign bank will be considered "well managed" if:

(1)  The foreign bank has received at least a satisfactory composite rating of its U.S. branch, agency, and commercial lending company operations at its most recent assessment;

(2)  The home country supervisor of the foreign bank consents to the foreign bank expanding its activities in the United States to include activities permissible for a financial holding company; and

(3)  The management of the foreign bank meets standards comparable to those required of a U.S. bank owned by a financial holding company.

[Codified to 12 C.F.R. § 225.90]

[Section 225.90 added at 65 Fed. Reg. 3793, January 25, 2000; 65 Fed. Reg. 15055, March 21, 2000, effective March 15, 2000; 66 Fed. Reg. 420, January 3, 2001, effective February 2, 2001]

§ 225.91  How may a foreign bank elect to be treated as a financial holding company?

(a)  Filing requirement. A foreign bank that operates a branch or agency or owns or controls a commercial lending company in the United States, or a company that owns or controls such a foreign bank, may elect to be treated as a financial holding company by filing a written declaration with the appropriate Reserve Bank.

(b)  Contents of declaration. The declaration must:

(1)  State that the foreign bank or the company elects to be treated as a financial holding company;

(2)  Provide the risk-based capital ratios and amount of Tier 1 capital and total assets of the foreign bank, and of each foreign bank that maintains a U.S. branch, agency, or commercial lending company and is controlled by the foreign bank or company, as of the close of the most recent quarter and as of the close of the most recent audited reporting period;

(3)  Certify that the foreign bank, and each foreign bank that maintains a U.S. branch, agency, or commercial lending company and is controlled by the foreign bank or company, meets the standards of well capitalized set out in § 225.90(b)(1)(i) and (ii) or § 225.90(b)(2) as of the date the foreign bank or company files its election;

(4)  Certify that the foreign bank, and each foreign bank that maintains a U.S. branch, agency, or commercial lending company and is controlled by the foreign bank or company, is well managed as defined in § 225.90(c)(1) as of the date the foreign bank or company files its election;

(5)  Certify that all U.S. depository institution subsidiaries of the foreign bank or company are well capitalized and well managed as of the date the foreign bank or company files its election; and

(6)  Provide the capital ratios for all relevant capital measures (as defined in section 38 of the Federal Deposit Insurance Act (12 U.S.C. 1831(o))) as of the close of the previous quarter for each U.S. depository institution subsidiary of the foreign bank or company.

(c)  Pre-clearance process.  Before filing an election to be treated as a financial holding company, a foreign bank or company may file a request for review of its qualifications to be treated as a financial holding company. The Board will endeavor to make a determination on such requests within 30 days of receipt. A foreign bank that has not been found, or that is chartered in a country where no bank from that country has been found, by the Board under the Bank Holding Company Act or the International Banking Act to be subject to comprehensive supervision or regulation on a consolidated basis by its home country supervisor is required to use this process.

[Codified to 12 C.F.R. § 225.91]


[Section 225.91 added at 65 Fed. Reg. 3793, January 25, 2000; amended at 65 Fed. Reg. 15056, March 21, 2000, effective March 15, 2000; 66 Fed. Reg. 420, January 3, 2001, effective February 2, 2001]

§ 225.92  How does an election by a foreign bank become effective?

(a)  In general.  An election described in § 225.91 is effective on the 31st day after the date that an election was received by the appropriate Federal Reserve Bank, unless the Board notifies the foreign bank or company prior to that time that:

(1)  The election is ineffective; or

(2)  The period is extended with the consent of the foreign bank or company making the election.

(b)  Earlier notification that an election is effective.  The Board or the appropriate Federal Reserve Bank may notify a foreign bank or company that its election to be treated as a financial holding company is effective prior to the 31st day after the election was filed with the appropriate Federal Reserve Bank. Such notification must be in writing.

(c)  Under what circumstances will the Board find an election to be ineffective?  An election to be treated as financial holding company shall not be effective if, during the period provided in paragraph (a) of this section, the Board finds that:

(1)  The foreign bank certificant, or any foreign bank that operates a branch or agency or owns or controls a commercial lending company in the United States and is controlled by a foreign company certificant, is not both well capitalized and well managed;

(2)  Any U.S. insured depository institution subsidiary of the foreign bank or company (except an institution excluded under paragraph (d) of this section) or any U.S. branch of a foreign bank that is insured by the Federal Deposit Insurance Corporation has not achieved at least a rating of "satisfactory record of meeting community needs" under the Community Reinvestment Act at the institution's most recent examination;

(3)  Any U.S. depository institution subsidiary of the foreign bank or company is not both well capitalized and well managed; or

(4)  The Board does not have sufficient information to assess whether the foreign bank or company making the election meets the requirements of this subpart.

(d)  How is CRA performance of recently acquired insured depository institutions considered?  An insured depository institution will be excluded for purposes of the review of CRA ratings described in paragraph (c)(2) of this section consistent with the provisions of § 225.82(d).

(e)  Factors used in the Board's determination regarding comparability of capital and management.--(1)  In general.  In determining whether a foreign bank is well capitalized and well managed in accordance with comparable capital and management standards, the Board will give due regard to national treatment and equality of competitive opportunity. In this regard, the Board may take into account the foreign bank's composition of capital, Tier 1 capital to total assets leverage ratio, accounting standards, long-term debt ratings, reliance on government support to meet capital requirements, the foreign bank's anti-money laundering procedures, whether the foreign bank is subject to comprehensive supervision or regulation on a consolidated basis, and other factors that may affect analysis of capital and management. The Board will consult with the home country supervisor for the foreign bank as appropriate.

(2)  Assessment of consolidated supervision.  A foreign bank that is not subject to comprehensive supervision on a consolidated basis by its home country authorities may not be considered well capitalized and well managed unless:

(i)  The home country has made significant progress in establishing arrangements for comprehensive supervision on a consolidated basis; and

(ii)  The foreign bank is in strong financial condition as demonstrated, for example, by capital levels that significantly exceed the minimum levels that are required for a well capitalized determination and strong asset quality.

[Codified to 12 C.F.R. § 225.92]

[Section 225.92 added at 65 Fed. Reg. 3793, January 25, 2000; amended at 65 Fed. Reg. 15056, March 21, 2000, effective March 15, 2000; 66 Fed. Reg. 420, January 3, 2001, effective February 2, 2001]

§ 225.93  What are the consequences of a foreign bank failing to continue to meet applicable capital and management requirements?

(a)  Notice by the Board.  If a foreign bank or company has made an effective election to be treated as a financial holding company under this subpart and the Board finds that the foreign bank, any foreign bank that maintains a U.S. branch, agency, or commercial lending company and is controlled by the foreign bank or company, or any U.S. depository institution subsidiary controlled by the foreign bank or company, ceases to be well capitalized or well managed, the Board will notify the foreign bank and company, if any, in writing that it is not in compliance with the applicable requirement(s) for a financial holding company and identify the areas of noncompliance.

(b)  Notification by a financial holding company required.--(1)  Notice to Board.  Promptly upon becoming aware that the foreign bank, any foreign bank that maintains a U.S. branch, agency, or commercial lending company and is controlled by the foreign bank or company, or any U.S. depository institution subsidiary of the foreign bank or company, has ceased to be well capitalized or well managed, the foreign bank and company, if any, must notify the Board and identify the area of noncompliance.

(2)  Triggering events for notice to the Board--(i)  Well capitalized.  A foreign bank becomes aware that it is no longer well capitalized at the time that the foreign bank or company is required to file a report of condition (or similar supervisory report) with its home country supervisor or the appropriate Federal Reserve Bank that indicates that the foreign bank no longer meets the well capitalized standards.

(ii)  Well managed.  A foreign bank becomes aware that it is no longer well managed at the time that the foreign bank receives written notice from the appropriate Federal Reserve Bank that the composite rating of its U.S. branch, agency, and commercial lending company operations is not at least satisfactory.

(c)  Execution of agreement acceptable to the Board--(1)  Agreement required; time period.  Within 45 days after receiving a notice under paragraph (a) of this section, the foreign bank or company must execute an agreement acceptable to the Board to comply with all applicable capital and management requirements.

(2)  Extension of time for executing agreement.  Upon request by the foreign bank or company, the Board may extend the 45-day period under paragraph (c)(1) of this section if the Board determines that granting additional time is appropriate under the circumstances. A request by a foreign bank or company for additional time must include an explanation of why an extension is necessary.

(3)  Agreement requirements.  An agreement required by paragraph (c)(1) of this section to correct a capital or management deficiency must:

(i)  Explain the specific actions that the foreign bank or company will take to correct all areas of noncompliance;

(ii)  Provide a schedule within which each action will be taken;

(iii)  Provide any other information that the Board may require; and

(iv)  Be acceptable to the Board.

(d)  Limitations during period of noncompliance--Until the Board determines that a foreign bank or company has corrected the conditions described in a notice under paragraph (a) of this section:

(1)  The Board may impose any limitations or conditions on the conduct or the U.S. activities of the foreign bank or company or any of its affiliates as the board finds to be appropriate and consistent with the purposes of the Bank Holding Company Act; and

(2)  The foreign bank or company and its affiliates may not commence any additional activity in the United States or acquire control or shares of any company under section 4(k) of the Bank Holding Company Act (12 U.S.C. 1843(k)) without prior approval from the Board.

(e)  Consequences of failure to correct conditions within 180 days--(1)  Termination of Offices and Divestiture.  If a foreign bank or company does not correct the conditions described in a notice under paragraph (a) of this section within 180 days of receipt of the notice or such additional time as the Board may permit, the Board may order the foreign bank or company to terminate the foreign bank's U.S. branches and agencies and divest any commercial lending companies owned or controlled by the foreign bank or company. Such divestiture must be done in accordance with the terms and conditions established by the Board.

(2)  Alternative method of complying with a divestiture order.  A foreign bank or company may comply with an order issued under paragraph (e)(1) of this section by ceasing to engage (both directly and through any subsidiary that is not a depository institution or a subsidiary of a depository institution) in any activity that may be conducted only under section 4(k), (n), or (o) of the BHC Act (12 U.S.C. 1843(k), (n) and (o)). The termination of activities must be completed within the time period referred to in paragraph (e)(1) of this section and subject to terms and conditions acceptable to the Board.

(f)  Consultation with Other Agencies.  In taking any action under this section, the Board will consult with the relevant Federal and state regulatory authorities and the appropriate home country supervisor(s) of the foreign bank.

[Codified to 12 C.F.R. 225.93]

[Section 225.93 added at 65 Fed. Reg. 3794, January 25, 2000; amended at 65 Fed. Reg. 15056, March 21, 2000, effective March 15, 2000; 66 Fed. Reg. 421, January 3, 2001, effective February 2, 2001]

§ 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?

(a)  Insured branch as an "insured depository institution."  A U.S. branch of a foreign bank that is insured by the Federal Deposit Insurance Corporation shall be treated as an "insured depository institution" for purposes of § 225.84.

(b)  Applicability.  The provisions of § 225.84, with the modifications contained in this section, shall apply to a foreign bank that operates an insured branch referred to in paragraph (a) of this section or an insured depository institution in the United States, and any company that owns or controls such a foreign bank, that has made an effective election under § 225.92 in the same manner and to the same extent as they apply to a financial holding company.

[Codified to 12 C.F.R. § 225.94]

[Section 225.94 added at 65 Fed. Reg. 3794, January 25, 2000; amended at 65 Fed. Reg. 15057, March 21, 2000, effective March 15, 2000; 66 Fed. Reg. 422, January 3, 2001, effective February 2, 2001]


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