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[Federal Register: March 23, 2000 (Volume 65, Number 57)]

[Rules and Regulations]

[Page 15526-15531]

From the Federal Register Online via GPO Access [wais.access.gpo.gov]

[DOCID:fr23mr00-3]


 

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FEDERAL DEPOSIT INSURANCE CORPORATION


 

12 CFR Parts 303 and 362


 

RIN 3064-AC38


 

 

Activities and Investments of Insured State Banks


 

AGENCY: Federal Deposit Insurance Corporation (FDIC).


 

ACTION: Interim final rule; request for comment.


 

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SUMMARY: The FDIC is adopting a rule on an interim basis to implement

certain provisions of the Gramm-Leach-Bliley Act. The interim final

rule impacts the FDIC's rules and regulations governing activities and

investments of insured state banks. Under the rule, FDIC insured state

nonmember banks must file a notice before they may conduct activities

as principal through a subsidiary that a national bank can conduct only

in a financial subsidiary. State nonmember banks must comply with four

requirements to carry out these activities. Also, state nonmember banks

along with their insured depository institution affiliates must have

received a rating of not less than satisfactory under the Community

Reinvestment Act. Under the rule, the FDIC may impose standards and

prudential safeguards to insulate the bank from liability for

activities of the subsidiary.


 

DATES: The interim final rule is effective March 11, 2000. Comments

must be received by May 22, 2000.


 

ADDRESSES: Send written comments to Robert E. Feldman, Executive

Secretary, Attention: Comments/OES, Federal Deposit Insurance

Corporation, 550 17th Street, N.W., Washington, D.C. 20429. Comments

may be hand delivered to the guard station at the rear of the 17th

Street Building (located on F Street), on business days between 7:00

a.m. and 5:00 p.m. Fax number (202) 898-3838; Internet Address:

comments @fdic.gov. Comments may be inspected and photocopied in the

FDIC Public Information Center, Room 100, 801 17th Street, N.W.,

Washington, D.C. 20429, between 9:00 a.m. and 4:30 p.m. on business

days.


 

FOR FURTHER INFORMATION CONTACT: Curtis Vaughn, Examination Specialist

((202) 898-6759), Division of Supervision; Linda L. Stamp, Counsel

((202) 898-7310) or Janet V. Norcom, Counsel ((202) 898-8886), Legal

Division, FDIC, 550 17th Street, N.W., Washington, D.C. 20429.


 

[[Page 15527]]



 

SUPPLEMENTARY INFORMATION:


 

I. Financial Subsidiary Activities


 

On November 12, 1999, President Clinton signed the Gramm-Leach-

Bliley Act (G-L-B Act) (Pub. L. 106-102) into law. Section 121(d) of

the G-L-B Act amended the Federal Deposit Insurance Act (FDI Act) (12

U.S.C. 1811 et seq.) by adding a new section 46 (12 U.S.C. 1831w). New

section 46(a) of the FDI Act provides that an insured state bank may

control or hold an interest in a subsidiary that engages as principal

in activities that would be permissible for a national bank to conduct

only through a "financial subsidiary," subject to certain conditions.

A financial subsidiary is a new type of subsidiary for national

banks, governed by new section 5136A of the Revised Statutes as created

under section 121(a) of the G-L-B Act. Section 5136A permits a

financial subsidiary to engage in specified, newly authorized

activities that are financial in nature and in activities that are

incidental to financial activities if the bank and the subsidiary meet

certain requirements and comply with stated safeguards. A financial

subsidiary also may combine these financial subsidiary activities with

activities that are permissible for national banks to engage in

directly. The financial subsidiary activities include many of the

activities which are authorized for the new "financial holding

companies" as laid out in new section 4(k) of the Bank Holding Company

Act (BHCA) (12 U.S.C. 1841 et seq.) as created by section 103(a) of the

G-L-B Act. Section 5136A also permits the Secretary of the Treasury (in

consultation with the Board of Governors of the Federal Reserve System)

to determine that additional activities are authorized for a financial

subsidiary.

A state bank seeking to engage as principal in a financial

subsidiary activity under section 46(a) must comply with four

conditions listed in section 46(a) itself. In addition, section 103(a)

of the G-L-B Act added a new subsection (4)(l)(2) to the BHCA (12

U.S.C. 1843(l)(2)), which contains a mandatory Community Reinvestment

Act (CRA) (12 U.S.C. 2901 et seq.) requirement enforceable by the FDIC.

This differs from the situation before enactment of the G-L-B Act, when

some of these activities were impermissible for a national bank and the

FDIC reviewed such activities under section 24 of the FDI Act (12

U.S.C. 1831a) as implemented in part 362 of the FDIC's rules and

regulations. Among other things, section 24 provides that a state bank

subsidiary may not engage as principal in activities which are not

permissible for a subsidiary of a national bank, unless the state bank

meets its applicable capital requirements and the FDIC determines that

the activity does not pose a significant risk to the appropriate

deposit insurance fund.

Certain activities which the FDIC has addressed under subpart A of

part 362, such as general securities underwriting, are now authorized

for a financial subsidiary of a national bank. This means such

activities will now be analyzed under section 46(a), and the

restrictions the FDIC previously outlined in subpart A of part 362 will

not apply to new state bank subsidiaries (or to existing state bank

subsidiaries engaging in new financial activities). Existing state bank

subsidiaries are grandfathered by section 46(b). 12 U.S.C. 1831w(b).

Where section 5136A of the Revised Statutes specifically prohibits

financial subsidiaries from engaging in certain activities as

principal, such as real estate development or investment, these

activities are outside the scope of section 46(a) and will continue to

be dealt with under section 24 and subpart A of part 362. Also, as the

Secretary of the Treasury exercises his or her authority in the future

to determine that additional activities are authorized for a financial

subsidiary, such activities will cease being governed by section 24 or

subpart A of part 362, and will begin being governed by section 46(a).


 

II. Status of Rulemakings Addressing State Bank Activities


 

Among other things, subpart B of part 362 creates safety and

soundness guidelines for an insured state nonmember bank subsidiary

which engages in real estate investment activities that would be

permissible for a subsidiary of a national bank but not permissible for

a national bank directly. On December 1, 1998, the FDIC proposed an

amendment to subpart B that would have added safety and soundness

guidelines to govern an insured state nonmember bank subsidiary which

engages in the public sale, distribution or underwriting of stocks,

bonds, debentures, notes or other securities activity that would be

permissible for a subsidiary of a national bank but not permissible for

a national bank directly.\1\ These real estate and securities

provisions were intended to address pending or approved applications

under regulations issued by the Office of the Comptroller of the

Currency (OCC) which permitted national banks to request OCC approval

to engage in certain activities through subsidiaries, even though the

activities were not permissible for the national bank itself.\2\ In an

effort to be proactive in terms of future approvals of activities by

the OCC under these regulations, the FDIC also sought comment on a

requirement that a notice be filed with the FDIC before an insured

state nonmember bank subsidiary engages in any other activity

permissible for a subsidiary of a national bank that is not permissible

for the parent national bank directly. Now that the OCC is proposing to

eliminate its regulations and the

G-L-B Act, through section 5136A and section 46(a), has established a

new analytical framework, the FDIC will not be pursuing these

amendments to subpart B.

---------------------------------------------------------------------------


 

\1\ 63 FR 66339 (December 1, 1998).

\2\ Part 5 of the OCC's regulations governs operating

subsidiaries. Section 5.34(f), which confirmed that there could be

activities not permissible for a national bank itself that could be

conducted by an operating subsidiary, has been superseded. The OCC

is currently proposing to eliminate that section of its rule. 65 FR

3157 (January 20, 2000).

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The FDIC's December 1, 1998 proposal to amend subpart B also

included a proposal to consolidate the remaining provisions of the

FDIC's securities activities regulation, Sec. 337.4, into subpart B. In

light of the changes made as a result of the G-L-B Act, these revisions

will be technical in nature. The FDIC will deal with those aspects of

its proposal when the FDIC finalizes the interim final rule adopted in

this rulemaking, or at a later time.

The interim final rule adopted in this rulemaking establishes

conditions and procedures that apply when a subsidiary of a state

nonmember bank seeks to engage as principal in financial activities as

authorized under section 46(a). The interim rule contains a general

provision advising state nonmember banks of the inapplicability of

subpart A of part 362, but the FDIC has not published revised

regulatory text modifying subpart A provisions addressing those

financial activities which are now addressed by section 46(a). When the

FDIC adopts a final version of the interim final rule proposed in this

rulemaking, the FDIC will revise current subpart A of part 362 to

modify treatment of those activities, such as securities underwriting,

which will now be treated under section 46(a) rather than section 24

and subpart A. Also, the real estate provisions of subpart B of part

362 are no longer of any effect, and will be removed. The FDIC invites

public comment on such revisions.


 

[[Page 15528]]


 

III. Description of the Interim Final Rule


 

The implementation of section 46(a) is lodged in a new subpart E of

part 362. Section 362.16 sets out the purpose and scope of the subpart,

including the scope of the activities covered. Subpart E will apply to

any "financial subsidiary activity," which is defined as an activity

which has been authorized for a financial subsidiary of a national bank

under section 5136A of the Revised Statutes and which may be conducted

by a national bank only through a financial subsidiary. Similar to

subpart A of part 362, the purpose and scope section also clarifies

what is meant by "as principal" activities, and specifies that the

financial subsidiary activity also must be in conformance with other

applicable state and federal law.

Sections 362.18(a)-(c) reiterate the four statutory conditions

applicable to financial subsidiary activities under section 46(a) as

well as the mandatory CRA requirement under section 4(l) of the BHCA.

Section 362.18(a) also provides the FDIC with a mechanism which gives

the FDIC an opportunity to impose safety and soundness constraints or

prudential safeguards on insured state nonmember bank subsidiaries that

engage in financial subsidiary activities as principal. If a bank

meeting the statutory requirements chooses to engage in such activities,

then the bank must file a notice with the FDIC 30 days before the

bank's subsidiary may engage in such activities. If the FDIC does not

object, the bank's subsidiary may commence the activity. This 30-day

advance notice is designed to allow the FDIC time to review the

activity and consider whether safety and soundness considerations make

it prudent that additional conditions be placed on the conduct of the

activity.

The four statutory conditions contained in section 46(a) and

reiterated in Sec. 362.18(a) are:

Each insured depository institution affiliate of the state

bank must be well capitalized, and the state bank must be well

capitalized after deducting the bank's investment, including retained

earnings, in all subsidiaries engaged in financial subsidiary

activities as principal.

The state bank must disclose the capital deduction and the

separate assets and liabilities of the subsidiary in any published

financial statement.

The state bank must comply with the financial and

operational safeguards required by section 5136A(d) of the Revised

Statutes of the United States, which require operational safeguards to

separate the bank from the risks of the subsidiary.

The state bank must comply with sections 23A and 23B of

the Federal Reserve Act as amended by section 121(b) of the G-L-B Act,

requiring certain transactional restrictions to be observed.

Section 362.18(b) provides that the bank must comply with the above

requirements at the time of filing of its notice and continue to comply

with these four requirements as long as the bank's subsidiary is

engaged in the financial activity. In addition, as specified in

Sec. 362.18(c), a subsidiary of an insured state nonmember bank may not

commence any financial subsidiary activity as principal if the state

bank or any of the state bank's insured depository institution

affiliates has received at each one's most recent examination a CRA

rating of less than a satisfactory record of meeting community credit

needs.\3\

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\3\ This prohibition is required by section 4(l)(2) of the BHCA

as enacted in section 103(a) of the G-L-B Act which is to be

codified at 12 U.S.C. 1843(l)(2).

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The prior notice procedure under Sec. 362.18 will give the FDIC an

opportunity to review a state nonmember bank's proposal and, if

necessary, impose additional prudential safeguards to insulate the bank

from liability for the activities of the subsidiary. The FDIC holds

authority to impose such safeguards under the FDIC's supervisory

authority in section 8 of the FDI Act (12 U.S.C. 1818). In addition,

section 114(c) of the G-L-B Act (12 U.S.C. 1828a(c)) confirms the

FDIC's prudential authority to govern the relationships or transactions

between a state nonmember bank and its subsidiaries. Although one of

the four conditions imposed by section 46(a) itself requires the bank

to have financial and operational safeguards to separate the bank from

risks of the subsidiary, the FDIC believes that it is still necessary

that the FDIC review the activities that state nonmember banks propose

to undertake to evaluate whether the bank's financial and operational

safeguards are sufficient. The financial and operational safeguard

requirement in section 46(a) cross-references to the same requirement

as imposed on financial subsidiaries of national banks under section

5136A(d) of the Revised Statutes, but the OCC has not released any

guidance or interpretations of these financial and operational

safeguards. The FDIC's review is likely to be especially important in

the area of securities underwriting. The FDIC has a long history of

imposing prudential safeguards to protect the bank from liability from

subsidiaries and affiliates that engage in securities underwriting. \4\

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\4\ See 12 CFR 337.4.

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Section 362.18(d) incorporates the grandfather provided under

section 46(b), permitting insured state banks to retain their interests

in subsidiaries lawfully held before the date of enactment of the G-L-B

Act. Section 362.18(d) also clearly states that state banks may not

apply to the FDIC under section 24 or subpart A of part 362 (as well as

Sec. 337.4 of the FDIC's rules) for approval to engage in a financial

subsidiary activity subject to restrictions different than are

contemplated under section 46.

The FDIC also has amended its notice processing rules at 303.122(a)

to add a reference to the new notices required by the interim final

rule.


 

IV. Administrative Procedure Act


 

The FDIC will make this interim final rule effective on March 11,

2000 without first reviewing public comments. Pursuant to 5 U.S.C. 553,

the FDIC finds that it is impracticable to review public comments prior

to the effective date of the interim final rule, and that there is good

cause to make the interim rule effective on March 11, 2000, due to the

fact that the rule sets forth procedures to implement statutory changes

that will become effective on March 11, 2000. The FDIC is seeking

public comment on all aspects of the interim final rule and will amend

the rule as appropriate after reviewing the comments. The FDIC is

specifically seeking comment on whether the FDIC should set forth

specific standards applicable to activities conducted under the new

section 46 of the FDI Act as it has done in subpart A with respect to

activities conducted under section 24 of the FDI Act.


 

V. Paperwork Reduction Act


 

In accordance with the Paperwork Reduction Act of 1980 (44 U.S.C.

3501 et seq.), the FDIC may not conduct or sponsor, and a person is not

required to respond to, a collection of information unless it displays

a currently valid Office of Management and Budget (OMB) control number.

The collection of information contained in this rule has been submitted

to OMB for review. OMB will take action within 60 days of this Federal

Register publication. The FDIC will publish notice if OMB takes an

action other than approval of the collection. The FDIC invites comment

on:

(1) Whether the collection of information contained in the

regulation


 

[[Page 15529]]


 

is necessary for the proper performance of the FDIC's functions,

including whether the information has practical utility;

(2) The accuracy of the estimate of the burden of the information

collection;

(3) Ways to enhance the quality, utility, and clarity of the

information to be collected;

(4) Ways to minimize the burden of the information collections on

respondents, including the use of automated collection techniques or

other forms of information technology; and

(5) Estimates of capital or start-up costs and costs of operation,

maintenance, and purchase of services to provide information.

For further information on the Paperwork Reduction Act aspect of

this rule, contact Steven F. Hanft at FDIC Clearance Officer, Office of

the Executive Secretary, Federal Deposit Insurance Corporation, 550

17th Street, N.W., Washington, D.C. 20429, (202) 898-3907.

Title of the collection: The interim final rule modifies an

information collection previously approved by OMB titled "Activities

and Investments of Insured State Banks" under control number 3064-

0111.

Summary of the collection: Generally, the collection includes the

description of the activity in which an insured state bank or its

subsidiary proposes to engage that would be impermissible absent the

FDIC's consent or nonobjection, and information about the relationship

of the activity to the bank's and/or subsidiary's operation and

compliance with applicable laws and regulations.

Need and Use of the information: The FDIC uses the information to

determine whether to grant consent or provide a nonobjection for the

insured state bank or its subsidiary to engage in the activity that

otherwise would be impermissible. The FDIC's uses its authority under

section 8 of the FDI Act and 12 CFR part 362.

Changes to the collection: The interim final rule will modify the

collection by adding at Sec. 362.18(a) the requirement of a notice to

the FDIC before the state nonmember bank engages through a subsidiary

in activities that are authorized for a financial subsidiary of a

national bank under section 5136A of the Revised Statutes but are not

permissible for the national bank itself. The contents of the notice

are described at Sec. 303.121(b).

Respondents: Banks or their subsidiaries desiring to engage in

activities that would be impermissible absent the FDIC's consent or

nonobjection.

Estimated annual burden resulting from this rulemaking:

Frequency of response: Occasional.

Number of responses: 1.

Average number of hours to prepare a response: 8 hours.

Total annual burden: 8 hours.


 

VI. Regulatory Flexibility Act Analysis


 

Pursuant to section 605(b) of the Regulatory Flexibility Act, the

FDIC certifies that this interim final rule will not have a significant

economic impact on a substantial number of small entities. As noted

above in connection with the Paperwork Reduction Act, the FDIC

estimates that the incidences in which insured state nonmember banks

will be required to file a notice under the rule will be infrequent and

will not require significant time to complete. Furthermore, the interim

final rule streamlines requirements for insured state nonmember banks.

It simplifies the requirements that apply when insured state nonmember

banks conduct certain activities through subsidiaries. Whenever

possible, the interim final rule clarifies the expectations of the FDIC

when it requires notices or applications to consent to activities by

insured state banks. The interim final rule also will make it easier

for small insured state banks to locate the rules that apply to their

investments.


 

VII. Assessment of Impact of Federal Regulation on Families


 

The FDIC has determined that this regulation will not affect family

well-being within the meaning of section 654 of the Treasury and

General Government Appropriations Act, 1999, enacted as part of the

Omnibus Consolidated and Emergency Supplemental Appropriations Act,

1999 (Pub. L. 105-277, 112 Stat. 2681).


 

VIII. Congressional Review Act


 

The OMB has determined that this interim final rule is not a

"major rule" within the meaning of the Congressional Review Act (5

U.S.C. 801 et seq.). The FDIC will file the appropriate reports with

Congress and the General Accounting Office so that this interim final

rule can be reviewed.


 

List of Subjects


 

12 CFR Part 303


 

Administrative practice and procedure, Authority delegations

(Government agencies), Banks, banking, Bank deposit insurance,

Reporting and recordkeeping requirements, Savings associations.


 

12 CFR Part 362


 

Administrative practice and procedure, Authority delegations

(Government agencies), Bank deposit insurance, Banks, banking, Insured

depository institutions, Investments, Reporting and record keeping

requirements, Savings associations.


 

For the reasons set forth above and under the authority of 12

U.S.C. 1819(a)(Tenth), the FDIC Board of Directors hereby amends 12 CFR

chapter III as follows:


 

PART 303--FILING PROCEDURES AND DELEGATIONS OF AUTHORITY


 

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

follows:


 

Authority: 12 U.S.C. 378, 1813, 1815, 1816, 1817, 1818, 1819

(Seventh and Tenth), 1820, 1823, 1828, 1828a, 1831a, 1831e, 1831o,

1831p-1, 1831w, 1835a, 1843(l), 3104, 3105, 3108; 3207; 15 U.S.C.

1601-1607.


 

2. Section 303.120 is revised to read as follows:


 

Sec. 303.120 Scope.


 

This subpart sets forth procedures for complying with notice and

application requirements contained in subpart A of part 362 of this

chapter, governing insured state banks and their subsidiaries engaging

in activities which are not permissible for national banks and their

subsidiaries. This subpart sets forth procedures for complying with

notice and application requirements contained in subpart B of part 362

of this chapter, governing certain activities of insured state

nonmember banks, their subsidiaries, and certain affiliates. This

subpart also sets forth procedures for complying with the notice

requirements contained in subpart E of part 362 of this chapter,

governing subsidiaries of insured state nonmember banks engaging in

certain financial activities.


 

3. Section 303.121 is revised to read as follows:



 

Sec. 303.121 Filing procedures.


 

(a) Where to file. A notice or application required by subparts A,

B or E of part 362 of this chapter shall be submitted in writing to the

appropriate regional director (DOS).

(b) Contents of filing. A complete letter notice or letter

application shall include the following information:

(1) Filings generally.--(i) A brief description of the activity and

the manner in which it will be conducted;

(ii) The amount of the bank's existing or proposed direct or

indirect investment in the activity as well as calculations sufficient

to indicate compliance with any specific capital ratio or investment

percentage


 

[[Page 15530]]


 

limitation detailed in subparts A, B or E of part 362 of this chapter;

(iii) A copy of the bank's business plan regarding the conduct of

the activity;

(iv) A citation to the state statutory or regulatory authority for

the conduct of the activity;

(v) A copy of the order or other document from the appropriate

regulatory authority granting approval for the bank to conduct the

activity if such approval is necessary and has already been granted;

(vi) A brief description of the bank's policy and practice with

regard to any anticipated involvement in the activity by a director,

executive office or principal shareholder of the bank or any related

interest of such a person; and

(vii) A description of the bank's expertise in the activity.

(2) [Reserved]

(3) Copy of application or notice filed with another agency. If an

insured state bank has filed an application or notice with another

federal or state regulatory authority which contains all of the

information required by paragraph (b) (1) of this section, the insured

state bank may submit a copy to the FDIC in lieu of a separate filing.

(4) Additional information. The appropriate regional director (DOS)

may request additional information to complete processing.


 

4. In Sec. 303.122, the first sentence of paragraph (a) is revised

to read as follows:



 

Sec. 303.122 Processing.


 

(a) Expedited processing. A notice filed by an insured state bank

seeking to commence or continue an activity under Sec. 362.4(b)(3)(i),

Sec. 362.4(b)(5), Sec. 362.8, or Sec. 362.18(a) of this chapter will be

acknowledged in writing by the FDIC and will receive expedited

processing, unless the applicant is notified in writing to the contrary

and provided a basis for that decision. * * *

* * * * *


 

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



 

Sec. 303.123 Delegations of authority.


 

* * * * *

(b) Other applications, notices, and actions. The authority to

review and act upon applications and notices filed pursuant to this

subpart G and to take any other action authorized by this subpart G or

subparts A, B and E of part 362 of this chapter is delegated to the

Director (DOS), and except as limited by paragraph (a) of this section,

to the Deputy Director and where confirmed in writing by the Director

to an associate director and the appropriate regional director and

deputy regional director.


 

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

ASSOCIATIONS


 

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

follows:


 

Authority: 12 U.S.C. 1816, 1818, 1819(a) (Tenth), 1828(m),

1828a, 1831a, 1831e, 1831w, 1843(l) .


 

7. A new subpart E is added as follows:

Subpart E--Financial Subsidiary Activities of Insured State Nonmember

Banks

Sec.

326.16 Purpose and scope.

326.17 Definitions.

326.18 Restrictions on financial subsidiary activities of insured

state nonmember bank subsidiaries.


 

Subpart E--Financial Subsidiary Activities of Insured State

Nonmember Banks



 

Sec. 362.16 Purpose and scope.


 

(a) This subpart, along with the notice procedures in subpart G of

part 303 of this chapter apply to certain banking practices that may

have adverse effects on the safety and soundness of insured state

nonmember banks. This subpart implements section 46 of the Federal

Deposit Insurance Act (12 U.S.C. 1831w) and requires that notices be

filed with the FDIC before subsidiaries of insured state nonmember

banks conduct financial subsidiary activities. The phrase "financial

subsidiary activity" means an activity which has been authorized for a

financial subsidiary of a national bank under section 5136A of the

Revised Statutes (12 U.S.C. 24 A) and which may be conducted by a

national bank only through a financial subsidiary. Under this subpart,

the FDIC may impose standards and prudential safeguards when

subsidiaries of insured state nonmember banks engage in financial

subsidiary activities. This subpart also implements the statutory

Community Reinvestment Act (CRA) (12 U.S.C. 2901 et seq.) requirement

applicable to these financial subsidiary activities.

(b) This subpart does not cover activities conducted other than

"as principal", defined for purposes of this subpart as activities

conducted as agent for a customer, conducted in a brokerage, custodial,

advisory, or administrative capacity, or conducted as trustee, or in

any substantially similar capacity. For example, this subpart does not

cover acting solely as agent for the sale of insurance, securities,

real estate, or travel services; nor does it cover acting as trustee,

providing personal financial planning advice, or safekeeping services.

(c) The FDIC intends to allow insured state nonmember bank

subsidiaries to undertake only safe and sound activities and

investments that would not present a significant risk to the deposit

insurance fund and that are consistent with the purposes of federal

deposit insurance and other applicable law. This subpart does not

authorize any insured state nonmember bank subsidiary to conduct

activities that are not authorized or that are prohibited by either

state or federal law.



 

Sec. 362.17 Definitions.


 

For the purposes of this subpart, the following definitions will

apply:

(a) Activity, company, control, insured depository institution,

insured state bank, insured state nonmember bank, and subsidiary have

the same meaning as provided in subpart A of this part.

(b) Affiliate has the same meaning contained in section 3 of the

Federal Deposit Insurance Act (12 U.S.C. 1813).



 

Sec. 362.18 Restrictions on financial subsidiary activities of insured

state nonmember bank subsidiaries.


 

(a) Financial subsidiary activities. The FDIC Board of Directors

has found that depending on the facts and circumstances of a particular

case, the conduct of a financial subsidiary activity as principal in a

subsidiary of an insured state nonmember bank may have adverse effects

on the safety and soundness of the insured state nonmember bank. The

FDIC Board of Directors has found that the FDIC cannot make a

determination whether there are adverse effects on the safety and

soundness of an insured state nonmember bank engaging in such

activities through a subsidiary and whether additional prudential

safeguards are necessary, unless the FDIC has had an opportunity for

prior review of the activities. Therefore, an insured state nonmember

bank may not establish, acquire or hold a subsidiary that engages in

financial subsidiary activities as principal or commence any such new

activity pursuant to section 46(a) of the Federal Deposit Insurance Act

(12 U.S.C. 1831w) unless:

(1) The insured state nonmember bank submits a notice under

Sec. 303.121 of this chapter and the FDIC processes the notice without

objection under Sec. 303.122(a) of this chapter. Consent only will be

given if the FDIC determines the activity poses no adverse effects on

the safety and soundness of


 

[[Page 15531]]


 

the insured state nonmember bank. Approvals granted under

Sec. 303.122(a) may be made subject to any conditions or restrictions

found by the FDIC to be necessary to protect the deposit insurance

funds from risk, prevent unsafe or unsound banking practices, and/or

ensure that the activity is consistent with the purposes of federal

deposit insurance and other applicable law.

(2) The insured state nonmember bank and the subsidiary comply with

sections 23A and 23B of the Federal Reserve Act (12 U.S.C. 371c and

371c-1), as if the subsidiary were a financial subsidiary within the

meaning of section 23A(e)(1).

(3) All insured depository institution affiliates of the insured

state nonmember bank are well-capitalized as defined in the appropriate

capital regulation and guidance of each institution's primary federal

regulator, and the insured state nonmember bank complies with the

capital deduction requirement in accordance with Sec. 362.4(e)(1)

through (3), discloses that capital separation in any published

financial statements and does not consolidate the subsidiary's assets

and liabilities with those of the insured state bank in any published

financial statements.

(4) The insured state nonmember bank and the subsidiary meet the

financial and operational safeguards applicable to a financial

subsidiary of a national bank conducting the same activities as

provided in section 5136A(d) of the Revised Statutes of the United

States (12 U.S.C. 24A(d)).

(b) Time of compliance. Any insured state nonmember bank that files

a notice under paragraph (a) of this section to which the FDIC does not

object must, at the time of the filing of such notice and as long as

the insured state nonmember bank's subsidiary is engaged in the

financial subsidiary activity, comply with the requirements of

paragraphs (a)(2), (a)(3), and (a)(4) of this section.

(c) Community Reinvestment Act (CRA). An insured state nonmember

bank may not commence any new financial subsidiary activity through a

subsidiary as principal or directly or indirectly establish or acquire

control of a company engaged in any such activity pursuant to paragraph

(a) of this section, if the bank or any of its insured depository

institution affiliates received a CRA rating of less than

"satisfactory record of meeting community credit needs" on its most

recent CRA examination prior to when the bank files a notice under this

section.

(d) Coordination with section 24 of the Federal Deposit Insurance

Act. (1) Grandfathered subsidiaries. Notwithstanding paragraphs (a)

through (c) of this section, an insured state bank may retain its

interest in any subsidiary that:

(i) Was conducting the financial subsidiary activity as principal

before November 12, 1999;

(ii) With authorization in accordance with section 24 of the

Federal Deposit Insurance Act (12 USC 1831a) and its implementing

regulation found in subpart A of this part 362; and

(iii) Which continues to meet the conditions and restrictions of

the part 362 order or regulation approving the activity as well as

other applicable law.

(2) New financial subsidiary activities. Notwithstanding subpart A

of this part 362 or Sec. 337.4 of this chapter, an insured state bank

may not, on or after November 12, 1999, establish, acquire or hold a

subsidiary that engages in financial subsidiary activities as principal

or commence any such new activity other than as provided in this

section.


 

By order of the Board of Directors.


 

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


 

Federal Deposit Insurance Corporation.

Robert E. Feldman,

Executive Secretary.

[FR Doc. 00-7161 Filed 3-22-00; 8:45 am]

BILLING CODE 6714 -01-P