[Federal Register Volume 59, Number 85 (Wednesday, May 4, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-10689]


[[Page Unknown]]

[Federal Register: May 4, 1994]


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FEDERAL RESERVE SYSTEM
12 CFR Parts 225 and 265

[Regulation Y; Docket No. R-0773]

 

Bank Holding Companies and Change in Bank Control; Rules 
Regarding Delegation of Authority

AGENCY: Board of Governors of the Federal Reserve System.

ACTION: Final rule.

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SUMMARY: On August 12, 1992, the Board approved several proposals to 
change certain procedures for obtaining Board approval of various 
applications and notices filed under the Federal Reserve Act, the Bank 
Holding Company Act, the Bank Merger Act, the Change in Bank Control 
Act and various other statutes. All but one of these changes to the 
Board's application and notice review procedures were implemented by 
the Board at that time. Most of these changes involved revising certain 
internal procedures of the Federal Reserve System (System), to improve 
the efficiency of processing applications that are reviewed by the 
Board in conjunction with the Reserve Banks and to reduce the 
regulatory burden associated with these application and notice 
procedures. Two of the changes--eliminating the stock redemption notice 
requirement for ``well-capitalized'' bank holding companies, and 
modifying the Board's delegation rules pertaining to competition and 
market concentration--necessitate amendments to certain provisions of, 
respectively, the Board's Regulation Y and Rules Regarding Delegation 
of Authority.

EFFECTIVE DATE: May 4, 1994.

FOR FURTHER INFORMATION CONTACT: Terence F. Browne, Senior Attorney 
(202/452-3707), Legal Division; or Sidney M. Sussan, Assistant Director 
(202/452-2638), John S. Russell, Manager--Applications Processing (202/
452-2466), or Beverly Evans, Supervisory Financial Analyst (202/452-
2573), Division of Banking Supervision and Regulation. For the hearing 
impaired only, Telecommunications Device for the Deaf (TDD), Dorothea 
Thompson (202/452-3544).

SUPPLEMENTARY INFORMATION:

Background

    As part of the Board's ongoing efforts to reduce the regulatory 
burden associated with its application and notice procedures, in 1992 
the Board approved a number of steps to reduce the burden associated 
with these procedures.1 Although all but one of these streamlining 
initiatives became effective upon publication in the Federal 
Register,2 two of the initiatives require that the Board's 
Regulations be amended to reflect the changes.
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    \1\See 57 FR 39641 (September 1, 1992). These changes included 
establishing certain procedures to limit extension of the pre-
acceptance period for applications; offering prospective applicants 
the opportunity to submit a pre-filing notice of intent to file an 
application; eliminating the stock redemption notice requirement for 
bank holding companies that are and, following the redemption would 
remain, ``well-capitalized'' on a consolidated basis and in 
generally satisfactory condition; expanding the authority of Reserve 
Banks to process all delegable applications without Board staff 
review; modifying the Board's delegation rules pertaining to 
competition and market concentration; reducing redundant post-
acceptance processing of Board action cases; increasing the 
monitoring of cases requiring extended processing; and establishing 
a general consent procedure under section 24A of the Federal Reserve 
Act for investments by state member banks in bank premises.
    In publishing notice of these changes, the Board also invited 
comment on any additional measures to eliminate or reduce burden 
associated with the Board's notice and application procedures. The 
comments received will be considered by the Board in its ongoing 
efforts to streamline and reduce the regulatory burden associated 
with the Board's notice and application procedures.
    \2\The Board is currently finalizing a separate regulation 
implementing a general consent procedure for investments in bank 
premises pursuant to section 24A of the Federal Reserve Act.
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    Currently, Sec. 225.4(b)(1) of Regulation Y (12 CFR 225.4(b)(1)) 
requires a bank holding company to give the Board prior notice of 
certain purchases or redemptions of its equity securities:

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

    The Board determined to eliminate this notice requirement for bank 
holding companies that are and, following the redemption or purchase, 
would remain ``well-capitalized'' on a consolidated basis and in 
generally satisfactory condition. The Board believes that a bank 
holding company would qualify for this exception to the notice 
requirement if:

     The total and tier 1 risk-based capital ratios and the 
leverage capital ratio for the bank holding company, both before and 
following the redemption, exceed the thresholds established for ``well-
capitalized'' state-member banks under 12 CFR 208.33(b)(1) as if the 
bank holding company (on a consolidated basis) were deemed to be a 
state-member bank;
     The bank holding company received a composite ``1'' or 
``2'' rating at its most recent BOPEC inspection, and
     The bank holding company is not the subject of any 
unresolved supervisory issues.

    The Board also determined to revise its delegation rules pertaining 
to competition and market concentration. If a party submits an 
application or notice to the System pursuant to the Bank Holding 
Company Act, Change in Bank Control Act, Bank Merger Act, or the Bank 
Service Corporation Act, the Board's Rules Regarding Delegation of 
Authority (12 CFR 265.1-265.11), permit the appropriate Reserve Bank to 
act on such application or notice unless certain circumstances are 
present. Specifically, Sec. 265.11(c)(11)(v) of the Board's Rules 
provide that a Reserve Bank is not authorized to approve the following 
transactions:
    (v) With respect to BHC formations, bank acquisitions or mergers, 
the proposed transaction involves two or more banking organizations:
    (A) That upon consummation of the proposal, would control over 30 
percent of total deposits in banking offices in the relevant geographic 
market, or would result in an increase of at least 200 points in the 
Herfindahl-Hirschman Index (HHI) in a highly concentrated market (a 
market with a post-merger HHI of at least 1800); or
    (B) Where divestitures designed to address any substantive 
anticompetitive effects are not effected on or before consummation of 
the proposed transaction[.]
    The Board determined to revise its Rules Regarding Delegation of 
Authority to increase the resulting market share criterion that would 
require Board consideration of a bank merger or acquisition from 30 
percent to 35 percent. In particular, the Reserve Banks may now act on 
applications involving two or more banking organizations that, upon 
consummation of the proposed transaction, would control 35 percent or 
less of total deposits in banking offices in the relevant geographic 
market. This change would also reflect the Board's practice, in 
computing market share, of weighing deposits of thrifts in the subject 
market at 50 percent.
    As part of this change to the Board's Rules Regarding Delegation of 
Authority, the Board also determined to eliminate the need for Board 
approval of applications involving divestitures designed to address 
anticompetitive effects, which divestitures are not completed on or 
before consummation of the proposed transaction.3 As a result, the 
Federal Reserve Banks may now act on applications involving proposed 
divestitures to address competitive concerns, provided the divestitures 
are undertaken in accordance with the Board's position on the timing of 
divestitures.4
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    \3\See 57 FR 39641 (September 1, 1992).
    \4\See id.; see also BankAmerica Corporation, 78 Federal Reserve 
Bulletin 338, 340 n.15 (1992).
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Final Regulatory Flexibility Act Analysis

    Pursuant to section 605(b) of the Regulatory Flexibility Act (5 
U.S.C. 601 et seq.), the Board does not believe that these changes will 
have a significant adverse economic impact on a substantial number of 
small entities. The amendments would reduce regulatory burdens imposed 
by Regulation Y and the Board's Rules Regarding Delegation of Authority 
and have no particular adverse effect on other entities.

Effective Date

    The provisions of the Administrative Procedures Act (APA)(5 U.S.C. 
553) relating to notice, public participation, and deferred effective 
date have not been followed in connection with the adoption of these 
amendments because the changes to be effected are either procedural in 
nature and do not constitute a substantive rule subject to the 
requirements of that section, or grant an exemption and reduce 
regulatory burden. The APA grants specific exemptions from its 
requirements relating to notice, public participation and the deferred 
effective date requirements in these instances (12 U.S.C. 553 (b)(3)(A) 
and (d)(1)).

Final Paperwork Reduction Act Analysis

    No collections of information pursuant to section 3504(h) of the 
Paperwork Reduction Act (44 U.S.C. 3501 et seq.) are contained in these 
changes.

List of Subjects

12 CFR Part 225

    Administrative practice and procedure, Banks, banking, Holding 
Companies, Reporting and recordkeeping requirements, Securities.

12 CFR Part 265

    Authority delegation (Government agencies), Banks, banking.
    For the reasons set forth in the preamble, the Board amends title 
12 of the Code of Federal Regulations, parts 225 and 265, as follows:

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

    1. The authority citation for part 225 is revised to read as 
follows:

    Authority: 12 U.S.C. 1817(j)(13), 1818, 1831i, 1831p-1, 
1843(c)(8), 1844(b), 1972(1), 3106, 3108, 3907, 3909, 3310, and 
3331-3351.

    2. Section 225.4 is amended by revising paragraph (b)(1), and 
adding a new paragraph (b)(6) to read as follows:


Sec. 225.4  Corporate practices.

* * * * *
    (b) * * *--(1) Filing notice. Except as provided in paragraph 
(b)(6) of this section, a bank holding company shall give the Board 
prior written notice before purchasing or redeeming its equity 
securities if the gross consideration for the purchase or redemption, 
when aggregated with the net consideration paid by the company for all 
such purchases or redemptions during the preceding 12 months, is equal 
to 10 percent or more of the company's consolidated net worth. For the 
purposes of this section, ``net consideration'' is the gross 
consideration paid by the company for all of its equity securities 
purchased or redeemed during the period minus the gross consideration 
received for all of its equity securities sold during the period other 
than as part of a new issue.
* * * * *
    (6) Exception for well-capitalized bank holding companies. A bank 
holding company seeking to redeem or purchase its equity securities is 
not required to obtain prior Board approval for the redemption or 
purchase under this section provided:
    (i) The total and tier 1 risk-based capital ratios and the leverage 
capital ratio for the bank holding company, both before and following 
the redemption, exceed the thresholds established for ``well-
capitalized'' state-member banks under 12 CFR 208.33(b)(1) as if the 
bank holding company (on a consolidated basis) were deemed to be a 
state member bank;
    (ii) The bank holding company received a composite ``1'' or ``2'' 
rating at its most recent BOPEC inspection; and
    (iii) The bank holding company is not the subject of any unresolved 
supervisory issues.
* * * * *

PART 265--RULES REGARDING DELEGATION OF AUTHORITY

    1. The authority citation for part 265 continues to read as 
follows:

    Authority: 12 U.S.C. 248(i) and (k).

    2. Section 265.11 is amended by revising paragraph (c)(11)(v) to 
read as follows:


Sec. 265.11  Functions delegated to Federal Reserve Banks.

* * * * *
    (c) * * *
    (11) * * *
    (v) With respect to bank holding company formations, bank 
acquisitions or mergers, the proposed transaction involves two or more 
banking organizations that, upon consummation of the proposal, would 
control over 35 percent of total deposits (including 50 percent of 
thrift deposits) in banking offices in the relevant geographic market, 
or would result in an increase of at least 200 points in the 
Herfindahl-Hirschman Index (HHI) in a highly concentrated market (a 
market with a post-merger HHI of at least 1800); or
* * * * *
    By order of the Board of Governors of the Federal Reserve 
System, April 28, 1994.
William W. Wiles,
Secretary of the Board.
[FR Doc. 94-10689 Filed 5-3-94; 8:45 am]
BILLING CODE 6210-01-P