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Via email
September 15, 2003
Office of the Comptroller of the Currency
250 E Street, S.W.
Public Information Room, Mailstop 1-5
Washington, DC 20219
Attn: Docket No. 03-10
Ms. Jennifer J. Johnson, Secretary
Board of Governors of the Federal Reserve System
20th Street and Constitution Avenue, N.W.
Washington, DC 20551
Attn: Docket No. R-1151
Mr. Robert E. Feldman, Executive Secretary
Federal Deposit Insurance Corporation
550 17th Street, N.W.
Washington, DC 20429
Attn: Comments
Regulation Comments, Chief Counsel’s Office
Office of Thrift Supervision
1700 G Street, NW
Washington, DC 20552
Attn: No. 2003-20
Re: Regulatory Publication and Review Under the Economic Growth &
Regulatory Paperwork Reduction Act of 1996 (“EGRPRA”)
Dear Madams and Sirs:
Bank of America Corporation (“Bank of America”) appreciates the
opportunity to comment to the Office of the Comptroller of the Currency
(the “OCC”), the Board of Governors of the Federal Reserve System (the
“Board”), the Federal Deposit Insurance Corporation (the “FDIC”), and
the Office of Thrift Supervision (collectively, the “Agencies”) in
connection with the Agencies’ first request for public comments pursuant
to EGRPRA. Bank of America, with $769 billion in total assets, is the
sole shareholder of Bank of America, N.A., the largest bank in the
United States, with full-service consumer and commercial operations in
21 states and the District of Columbia. Bank of America provides
financial products and services to two million businesses as well as one
out of three households within its franchise, and provides international
corporate financial services for clients around the world.
Under the EGRPRA mandate, the Agencies have solicited public comment
on their regulations encompassing three categories: Applications and
Reporting, Powers and Activities, and International Activities. In
particular, the Agencies have requested public comment on which of their
regulations contain “outdated, unnecessary, or unduly burdensome
regulatory requirements.” Bank of America supports the EGRPRA process
and the Agencies’ efforts to reduce regulatory burden wherever possible.
Within two of the three categories identified by the Agencies, Bank of
America has identified a number of opportunities for regulatory
simplification:
Applications and Reporting
Change in Bank Control Act Regulations, 12 CFR § 5.51 & 12
CFR Part 225 Subpart E
OCC and Fed regulations create a rebuttable presumption of “control”
whenever one or more persons “acting in concert” acquire 10% of more of
bank or bank holding company voting shares and, in such circumstances,
require the filing of a Change in Bank Control (“CIBC”) notice. We
understand that the Fed (and possibly the OCC) considers commonly
advised mutual and other investment funds to be “acting in concert” and
therefore a CIBC notice is required whenever a fund family collectively
acquires 10% or more of the voting shares of a bank or bank holding
company.
Bank of America believes that, insofar as registered investment
advisers and registered investment companies are concerned, sufficient
safeguards are in place to ensure that commonly advised funds cannot be
used as vehicles to acquire control of a bank or bank holding company
for the benefit of the fund advisor or parent of the fund advisor.
Moreover, attributing the funds’ ownership to the advisor (or the
advisor’s parent) for purposes of the CIBC regulations appears to be
inconsistent with other positions (for example, whether to aggregate
fund investments with those of the parent to determine whether the
Section 4(c)(6) 5% threshold has been exceeded). Thus, Bank of America
believes that the CIBC regulations are unreasonably burdensome insofar
as the regulations would require aggregation of investments by commonly
advised registered investment companies, and believes that an express
exemption should be established in the regulation.
Rules, Policies and Procedures for Corporate Activities, 12
CFR Part 5
Business Combinations, 12 CFR § 5.34. Section 215a-3 permits the
merger of nonbank entities (including national bank operating
subsidiaries) into a national bank. Such transactions are subject to the
Bank Merger Act (12 USC § 1828(c)) and FDIC regulations promulgated
pursuant to that Act (12 CFR Part 303, Subpart D). FDIC regulations
require the filing of an application with the FDIC and permit, under
certain circumstances, streamlined filings, but in all cases require
publication of notice and opportunity for public comment with respect to
such transactions.
Bank of America believes that the notice and comment requirement is
unnecessary when the merging entity is a wholly owned bank operating
subsidiary. National bank operating subsidiaries are subject to OCC
supervision, are subject to national bank activity and branching
limitations, are consolidated with the national bank, and are otherwise
treated largely as a department or division of the national bank.
Solicitation of public comment in connection with the merger of an
operating subsidiary into its parent national bank only serves to
increase transaction costs and to delay consummation. Accordingly, we
believe that FDIC and/or OCC regulations should be revised to eliminate
public comment with respect to such transactions or, at a minimum, to
allow the FDIC to grant a waiver on a case-by-case basis.
Dividends Payable in Property other than Cash, 12 CFR § 5.66. OCC
regulations currently require prior OCC approval for any noncash
dividend or “dividend in kind,” regardless of its size. In some
situations, however, dividend transactions may be the optimal method for
transferring certain property from the bank to its parent holding
company. For national banks with a single shareholder, Bank of America
believes that prior approval should not be required for such dividends
in certain circumstances, for example, where the property is dividended
at its fair market value, the dividend will not cause the bank to exceed
the dividend limits set forth in 12 USC § 60, and the dividend comprises
an insubstantial amount (e.g., less than 1%) of the Bank’s paid-in
capital and retained surplus.
Deposit Insurance Filing Procedures, 12 CFR Part 303 Subpart
B
Bank of America reiterates its comments concerning the requirement
for obtaining public comment on operating subsidiary mergers with banks,
set forth in the discussion of 12 CFR Part 5, above.
Powers and Activities
Investment Securities, 12 CFR Part 1
12 CFR § 1.3(h) permits a national bank to purchase and sell for its
own account “investment company shares,” provided the portfolio of the
investment company consists exclusively of assets that the bank may
purchase and sell for its own account under the OCC’s investment
securities regulations (12 CFR Part 1), and the bank’s holdings of
investment company shares do not exceed the quantitative limitations set
forth in 12 CFR § 1.4(e).
Because the term “investment company” is narrowly defined at 12 CFR §
1.1(c) to include only investment companies registered under Section 8
of the Investment Company Act of 1940 (the “1940 Act”),
1
the OCC has
concluded that, on a case-by-case basis, a national bank may make
comparable investments in entities exempt from registration as an
investment company under Section 3(c)(1) of the 1940 Act.2 Section
3(c)(1) of the 1940 Act is limited to an issuer whose outstanding
securities (other than short-term paper) are beneficially owned by not
more than one hundred persons and which is not making and does not
presently propose to make a public offering of its securities.
As long as the portfolio of an entity consists exclusively of assets
that the national bank may purchase and sell for its own account under
Part 1, and a national bank’s holdings of shares in such entities comply
with the limitations contained in Section 1.4(e) of the regulations, no
purpose is served by requiring OCC approval for such investment or
limiting such investments to entities which qualify for the registration
exemption under Section 3(c)(1) of the 1940 Act. If the effect of an
investment is merely to pass through the substance of an ownership
interest in the assets of the entity invested in, the OCC’s concerns of
legal and quantitative permissibility would be satisfied regardless of
whether the entity invested in is a registered investment company.
Accordingly, Bank of America recommends that 12 CFR § 1.3(h) be
revised to read as follows:
(h) Pass-through shares – A national bank may purchase and sell for
its own account shares of an investment company or other entity provided
that:
(i) The portfolio or assets of the investment company or other entity
consist exclusively of assets that the national bank may purchase and
sell for its own account under this part; and
(ii) The bank’s holdings of such shares do not exceed the limitations
in section 1.4(e).
Public Welfare Investments, 12 CFR Part 24
Part 24 requires that a national bank self-certify its public welfare
investments by providing certain information to the OCC within 10
working days after the initial investment. Although the OCC recently
relaxed its self-certification requirements somewhat,3 the revised
regulation still requires the national bank to provide considerable
information to the OCC concerning the public welfare investments. In
some respects, the amount of information required under Part 24’s
self-certification process is more extensive than required under Part 5
in connection with the creation of an operating subsidiary. For example,
Part 5 waives the operating subsidiary requirement when the Bank has
previously filed a notice or obtained OCC approval to engage in the same
activity; Part 24 contains no such exemption for public welfare
investments similar to those previously made by the bank. Bank of
America believes that the burden of the self-certification requirement
should be substantially reduced, either by waiving the requirement for
well-managed national banks with an “Outstanding” CRA rating, by
creating a de minimis level below which no self-certification is
required, or by establishing a like-kind investment exemption similar to
that found within Part 5.
Bank Holding Companies and Financial Holding Companies, 12 CFR Part
225, Subpart I
Bank of America believes that the mutual fund seeding authority of
Regulation Y (12 CFR § 225.86(b)(3)) is unduly burdensome because that
provision imposes requirements not required by the Gramm-Leach-Bliley
Act (“GLBA”). Specifically, Bank of America believes that the
requirement that the financial holding company (“FHC”) reduce its
ownership in the fund to less than 25% within one year is unsupported by
GLBA and is an unnecessary limitation on the powers of a FHC.
GLBA Section 103 authorized FHCs to engage in expanded activities,
including certain enumerated powers such as “[u]nderwriting, dealing, or
making a market in securities.” In this respect, Congress intended GLBA
Section 103 to authorize a wide range of activities including
“securities underwriting, dealing, and market making without any revenue
limitations such as sponsoring and distributing all types of mutual
funds and investment companies” (emphasis added.)4 Section 103 also
expanded the scope of activities by specifically authorizing FHCs to
engage in the same activities domestically as currently permitted abroad
under the Board’s Regulation K, without limitation.
In the Board’s commentary accompanying the issuance of §225.86(b)(3),
the Board expressly acknowledged Regulation K as the source of the new
financial in nature determination for domestic mutual fund authority.
Yet, in authorizing mutual fund authority domestically, the Board by
regulation added the 25% requirement, in effect conferring much more
limited authority domestically than currently authorized abroad under
Regulation K.5 The commentary contains no explanation surrounding the
source or rationale for the 25% requirement or why domestic authority
should be more constrained than foreign authority.6
Bank of America believes that while §225.86(b)(3) was primarily
intended to merely codify the Board’s determination under GLBA that
mutual fund activities are financial in nature in accordance with
Regulation K, the Board significantly restricted mutual fund authority
domestically by adding the 25% requirement without any statutory basis.
Accordingly, Bank of America believes that the 25% requirement should be
removed from 12 CFR § 225.86(b)(3).
* * * * *
If you have any questions, please do not hesitate to contact me at
(704) 386-1613.
Sincerely,
Scott A. Cammarn
Associate General Counsel
Bank of America
________________________________________
1 15 USC §
80a-8.
2 15 USC § 80a-3(c)(1).
3 See OCC Final Rule, Community and Economic
Development Entities, Community Development Projects, and Other Public
Welfare Investments, 68 FED. REG. 48,771 (Aug. 15, 2003)
4 H.R. Conf. Rep. No. 434, 106th Cong. 1st Sess. 153
(1999), reprinted in 1999 U.S.C.C.A.N. 245, 248 (emphasis added).
5 Prior to the passage of GLBA, based on the U.S. Supreme
Court’s decision in Investment Company Institute v. Camp, 401
U.S. 617 (1971), the Board’s position was that Section 20 of the Glass-Steagall
Act effectively prohibited bank holding companies from organizing,
sponsoring or controlling a mutual fund in the United States. 12 CFR §
225.125. During this time, however, the Board expressly permitted a bank
holding company to engage in these mutual fund activities outside of the
United States pursuant to Regulation K because Glass-Steagall’s
prohibitions did not apply extraterritorially. Regulation K, as in
effect at the time of the passage of GLBA, permitted, “Organizing,
sponsoring and managing a mutual fund if the fund’s shares are not sold
in the United States or to U.S. residents and the fund does not exercise
managerial control over the firms in which it invests.” 12 CFR §
211.5(d)(11) (now renumbered as 12 CFR § 211.10(a)(11)). Regulation K
did not then, and does not now, impose a requirement that the ownership
in the fund be reduced to less than 25% within one year.
6 The 25% requirement may emanate from an interpretive letter
issued by the Board prior to the passage of GLBA. Several months before
GLBA was enacted, the Board authorized First Union Corporation to
provide seed capital to mutual funds on the condition that First Union
reduce its ownership interest in each fund to below 25% within six
months after the fund was launched (the “First Union Letter”). While the
First Union Letter imposed a limitation similar to the 25% requirement,
it should not be controlling under these circumstances. First, the First
Union Letter interprets the permissibility of seeding activities under
the Bank Holding Company Act prior to the passage of GLBA. The First
Union Letter, therefore, does not address activities that are “financial
in nature” nor does it contemplate financial activities abroad. Second,
the limitations imposed in the First Union Letter were described as
necessary to comply with Section 20 of the Glass-Steagall Act. Thus, the
25% requirement discussed in the First Union Letter was not intended to
define the permissibility of the activity under the Bank Holding Company
Act, but rather was intended to ensure that First Union would not, as a
result of its seeding activity, have “control” over a company engaged in
securities activities in violation of Section 20 of Glass-Steagall.
Inasmuch as Section 20 was repealed by GLBA, the 25% requirement should
not have been carried forward into the GLBA implementing regulations,
specifically, 12 CFR § 225.86(b)(3).
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