[Federal Register Volume 59, Number 211 (Wednesday, November 2, 1994)]
[Rules and Regulations]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-27058]


[[Page Unknown]]

[Federal Register: November 2, 1994]


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FEDERAL RESERVE SYSTEM
12 CFR Parts 225 and 262

[Regulation Y; Docket No. R-0853]

 

Applications Under Regulation Y

AGENCY: Board of Governors of the Federal Reserve System.

ACTION: Interim rule with request for comments.

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SUMMARY: These rules implement the streamlined notice procedure 
recently enacted in Section 319 of the Riegle Community Development and 
Regulatory Improvement Act of 1994 (``Riegle Act'') for the formation 
of a new bank holding company that results from a corporate 
reorganization of a bank by the current shareholders of the bank. These 
rules also implement section 321 of the Riegle Act, which amends the 
Bank Holding Company Act and the Bank Merger Act to authorize the Board 
to shorten the post-approval waiting period for bank acquisitions and 
mergers (during which time the United States Attorney General may 
review the competitive effects of a proposal approved by the Board) 
from 30 to 15 days with the consent of the United States Attorney 
General. Because the procedures prescribed by section 319 and section 
321 are effective immediately, the Board has proposed the following as 
an interim rule that will take effect immediately. The Board is seeking 
comments on this interim rule, and will amend the rule as needed to 
address the comments received. The Board also is currently developing 
additional initiatives to reduce the regulatory burden associated with 
its application and notice procedures, and invites comment on any 
suggestions in furtherance of these initiatives.
DATES: Interim Rule effective on November 2, 1994; comments must be 
received by December 5, 1994.

ADDRESSES: Comments should refer to Docket No. R-0853 and may be mailed 
to William W. Wiles, Secretary, Board of Governors of the Federal 
Reserve System, 20th Street and Constitution Avenue, NW, Washington, DC 
20551. Comments also may be delivered to Room B-2222 of the Eccles 
Building between 8:45 a.m. and 5:15 p.m. weekdays, or to the Board's 
Security Control Room inside the Eccles Building courtyard on 20th 
Street (between Constitution Avenue and C Street, NW) anytime. Comments 
may be inspected in room MP-500 of the Martin Building between 9 a.m. 
and 5 p.m. weekdays, except as provided in 12 CFR 261.8 of the Board's 
rules regarding availability of information.

FOR FURTHER INFORMATION CONTACT: Scott G. Alvarez, Associate General 
Counsel (202/452-3583), or Terence F. Browne, Senior Attorney (202/452-
3707), Legal Division; or Don E. Kline, Associate Director (202/452-
3421), Nicholas A. Kalambokidis, Supervisory Financial Analyst (202/
452-3830), or Larry R. Cunningham, Senior Financial Analyst (202/452-
2701), Division of Banking Supervision and Regulation of the Board of 
Governors of the Federal Reserve System. For the hearing impaired only, 
Telecommunications Device for the Deaf (TDD), Dorothea Thompson (202/
452-3544).

SUPPLEMENTARY INFORMATION: Section 3(a) of the Bank Holding Company Act 
of 1956 (12 U.S.C. 1842(a)) (``BHC Act'') requires Federal Reserve 
Board approval prior to consummating certain transactions resulting in 
the formation of a bank holding company, or in the acquisition by a 
bank holding company of shares or control of a bank, subject to certain 
exceptions. Section 319 of the Riegle Community Development and 
Regulatory Improvement Act of 1994 (Pub. L. No. 103-325, section 319, 
108 Stat. 2160, 2224 (1994)(``Section 319'')) amends section 3 of the 
BHC Act to establish a notice procedure for the formation of a new bank 
holding company resulting from a corporate reorganization that involves 
substantially the same shareholders.\1\ In connection with section 319, 
section 320 of the Riegle Act provides an exemption from the 
registration requirements of the Securities Act of 1933 for securities 
issued by a bank holding company pursuant to such a reorganization.

    \1\Section 319 also amends section 5(d)(3) of the Federal 
Deposit Insurance Act (12 U.S.C. 1815(d)(3))--commonly referred to 
as the ``Oakar Amendment''--to eliminate the requirement for prior 
Board approval of transactions by banks owned by holding companies 
to merge with thrift institutions. Under the Riegle Act, Oakar 
transactions continue to require the prior approval of the 
appropriate Federal banking agency for the acquiring institution, 
and all Oakar transactions must comply with section 3(d) of the BHC 
Act, the ``Douglas Amendment.'' No amendments to the Board's 
regulations are needed to implement these amendments to section 
5(d)(3).
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    In addition, section 321 of the Riegle Act (Pub. L. No. 103-325, 
section 321, 108 Stat. 2160, 2226 (1994)(``Section 321'') permits the 
Board, with the consent of the U.S. Attorney General, to shorten the 
post-approval waiting period for bank acquisitions and mergers from 30 
days to 15 days. The interim rule implement the provisions enacted in 
sections 319 and 321 of the Riegle Act. Comment is invited on all 
aspects of these proposals.

Formation of a New Bank Holding Company Under Section 319

    By its terms, the notice procedure added by section 319\2\ applies 
only if certain conditions are met. Specifically, the formation of a 
new bank holding company may be consummated 30 days after providing 
written notice to the appropriate Federal Reserve Bank if: (1) The 
shareholders of the bank will acquire, as a result of the 
reorganization, the shares of the newly formed bank holding company in 
substantially the same proportional interest as they held in the bank; 
(2) the bank holding company would meet, and its resulting subsidiary 
bank would meet, certain financial and capital standards; (3) the bank 
holding company would not, as a result of the reorganization, acquire 
other banking or nonbanking interests; and (4) during the 30-day notice 
period, the Reserve Bank or the Board does not object to the proposal.

    \2\Any application to organize a bank holding company that was 
filed with a Reserve Bank prior to September 23, 1994 will continue 
to be processed under the existing rules.
Substantially the Same Shareholders

    Under the interim rule, the requirement that shareholders of the 
bank acquire ``substantially the same share interest'' in the newly 
formed bank holding company would be met by proposals in which the 
shareholder or shareholders who lawfully control at least 80 percent of 
the shares of the bank at the time the notice is filed would acquire, 
immediately after the reorganization, at least 80 percent of the shares 
of the holding company in substantially the same proportion.
    By the terms of Section 319, allowance is made for changes in 
shareholders' interests resulting from the exercise of dissenting 
shareholders' rights under State or Federal law. Accordingly, under the 
interim rule, a shareholder of the bank will be considered to have 
substantially the same proportional interest in the holding company 
(notwithstanding a change in the percentage of shares controlled by the 
shareholder) if the shareholder interest increases, on a pro rata 
basis, as a result of either the redemption by the bank or bank holding 
company of shares from dissenting shareholders, or as a result of the 
acquisition of shares of dissenting shareholders by the remaining 
shareholders.
    However, this notice procedure would not be available in cases in 
which any shareholder or group of shareholders acting in concert would, 
following the reorganization, own or control 10 percent or more of any 
class of voting shares of the bank holding company unless that 
shareholder or group of shareholders was authorized, after review under 
the Change in Bank Control Act of 1978 (12 U.S.C. 1817(j)) by the 
appropriate Federal banking agency for the bank, to own or control 10 
percent or more of any class of voting shares of the bank. Similarly, 
this procedure is not available in cases in which the exercise of 
dissenting shareholders' rights would cause a company that is not a 
bank holding company (other than the company in formation) to be 
required to register as a bank holding company. This procedure also is 
not available for the formation of a bank holding company organized in 
mutual form.
    The Board seeks comment on other alternative formulations 
consistent with the statutory mandate that the reorganization involve 
substantially the same shareholders.

Financial Standards

    Section 319 also establishes certain financial thresholds that must 
be satisfied to qualify for the abbreviated notice procedure. In 
particular, the bank to be reorganized must, at the time the notice is 
filed, be ``adequately capitalized,'' as this term is defined in 
section 38 of the Federal Deposit Insurance Act. See 12 U.S.C. 1831o. 
In addition, Section 319 requires that the bank holding company 
resulting from the reorganization meet any ``capital and other 
financial standards'' established by the Board.
    In the interim rule, the Board has established three requirements 
designed to identify reorganization proposals that do not raise 
financial or supervisory concerns that would benefit from review and 
explanation through an application process rather than an abbreviated 
notice procedure. Under the interim rule, a proposal to form a new one-
bank holding company would qualify for the abbreviated notice 
procedures established in Section 319 if: (1) The bank has received at 
least a composite ``satisfactory'' rating at its most recent 
examination, in the event that the bank has been subject to 
examination; (2) the amount of debt that the bank holding company would 
assume at the time of the reorganization, and the proposed means of 
retiring this debt, would not place undue burden on the holding company 
or its subsidiary on a pro forma basis;\3\ and (3) at the time of the 
reorganization, neither the bank nor any of its officers, directors or 
shareholders is involved in any unresolved supervisory or enforcement 
matters with any appropriate Federal banking agency.

    \3\For a banking organization with consolidated assets, on a pro 
forma basis, of less than $150 million (other than a banking 
organization that would control a de novo bank), this requirement 
would be satisfied if the proposal would comply with the Board's 
policy statement on small one-bank holding company formations (12 
CFR part 225, appendix C).
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    Section 319 provides that this abbreviated notice procedure is only 
available to a bank holding company that would not acquire any 
additional banks or any nonbanking interests as part of the 
reorganization.
Contents of Notice

    To begin the notice period under the interim rule, the notificant 
organization must submit to the appropriate Reserve Bank a written 
notice that includes: (1) Certification that the requirements of 
Section 319 and the Board's implementing rule are met by the proposal; 
(2) a list of the shareholders of the bank prior to the reorganization 
and of the holding company following the reorganization, identifying 
the percentage of shares held by each shareholder in the bank and 
proposed to be held in the new holding company; (3) a description of 
the resulting management of the proposed bank holding company and its 
subsidiary bank, including (i) biographical information regarding any 
officers, directors or shareholders of the resulting bank holding 
company who were not senior officers or directors of the bank prior to 
the reorganization, and (ii) a detailed history of the involvement of 
any officer, director or shareholder of the resulting bank holding 
company in any administrative or criminal proceeding; (4) pro forma 
financial statements for the bank holding company, and a description of 
the amount, source and terms of debt, if any, that the bank holding 
company proposes to incur, and information regarding the sources and 
timing for debt service and retirement; and (5) verification that 
notice of the proposal has been published in a newspaper of general 
circulation in the community in which the bank is located that provides 
an opportunity for interested persons to comment on the notice for a 
period of at least 15 calendar days.
    As indicated above, the interim rule requires that the applicant 
publish notice of the proposed reorganization and invite public comment 
for a period of at least 15 days. This request for public comment is 
consistent with the Board's practice of publishing notice of all bank 
holding company formations and bank expansion proposals so that the 
public may comment in particular on the bank's record of serving the 
convenience and needs of the community under the Community Reinvestment 
Act.

Objections to Notices

    Within 7 calendar days of receipt of a notice containing all the 
information required under this interim regulation, the appropriate 
Reserve Bank will provide a written acknowledgement of receipt of the 
notice indicating that the transaction may be consummated following the 
30th calendar day after the date the notice was received by the Reserve 
Bank unless the Reserve Bank or the Board objects to the proposal 
during that time. The Reserve Bank may provide written notice of 
approval of the reorganization at an earlier time during the notice 
period.
    If during the notice period the Board or the Reserve Bank objects 
to the proposal, the bank holding company must file an application 
under section 3 of the BHC Act.\4\ In this case, the notificant will 
immediately be notified of the reason for the objection, and of any 
additional information that may be needed to complete an application.

    \4\See 12 CFR 225.14. If the Reserve Bank or Board believes that 
issues might readily be resolved within the notice period without 
having to issue a formal objection, the Reserve Bank or Board may 
request additional information during the notice period to 
supplement the notice.
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Shortening of Post-Approval Waiting Period Under Section 321

    Currently, section 11(b)(1) of the BHC Act (12 U.S.C. 1849(b)(1)) 
prohibits a bank holding company that has received approval for a 
transaction under section 3 of the BHC Act (other than transactions 
involving a probable bank failure or an emergency) from consummating 
the transaction prior to the thirtieth day following Board approval of 
the proposal in order to provide the United States Attorney General 
time to review the transaction for any adverse effects on competition 
in banking or the concentration of banking resources. The Bank Merger 
Act contains a similar provision applying post-approval waiting period 
to bank merger proposals. See 12 U.S.C. 1828(c)(6).
    Because Section 319 creates an exception from the application and 
approval process established by section 3 of the BHC Act, a notificant 
who has met the criteria of Section 319 and the interim rule does not 
appear to be subject to the post-approval waiting period established 
under section 11 of the BHC Act.
    With regard to other acquisitions under section 3 of the BHC Act or 
under the Bank Merger Act, section 321 of the Riegle Act (``Section 
321'') authorizes the Board to shorten the post-approval waiting period 
in any case to a period of not less than 15 days, provided the Board 
has received no adverse comment from the Attorney General relating to 
competitive factors and the Attorney General concurs with the Board's 
decision to shorten the waiting period. Section 321 does not affect 
processing of applications involving probable bank failures or 
emergencies. The interim rule incorporates these revisions to the 
Board's Regulation Y. The Board is currently discussing with the U.S. 
Department of Justice the types of cases that may qualify for this 
shortened post-approval waiting period, and invites public comment on 
the types of cases where this would be appropriate.
    As described above, the Board has adopted the following interim 
rule which shall be effective immediately, and invites public comment 
on all aspects of this interim rule. The Board also invites suggestions 
on other means of reducing the regulatory burden associated with its 
application and notices procedures.

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. This interim rule will reduce the regulatory burden 
imposed by the Board's procedures on small bank holding companies in 
formation, and the Board is inviting public comment on additional ways 
to reduce regulatory burden.
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, and comment is invited on a proposal that would reduce the 
current information collection requirements imposed in connection with 
certain applications.

List of Subjects

12 CFR Part 225

    Administrative practice and procedure, Banks, banking, Federal 
Reserve System, Holding companies, Reporting and recordkeeping 
requirements, Securities.

12 CFR Part 262

    Administrative practice and procedure, Banks, banking, Federal 
Reserve System.

    For the reasons set forth in the preamble, the Board amends 12 CFR 
parts 225 and 262 as follows:

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

    1. The authority citation for part 225 continues 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. In Sec. 225.11, the introductory text is revised to read as 
follows:


Sec. 225.11  Transactions requiring Board approval.

    The following transactions require an application for the Board's 
prior approval under section 3 of the Bank Holding Company Act except 
as exempted under Sec. 225.12 or as otherwise covered by Sec. 225.15 of 
this part:
* * * * *
    3. In Sec. 225.14, paragraph (i) is revised to read as follows:


Sec. 225.14  Procedures for applications, notices, and hearings.

* * * * *
    (i) Waiting period. A transaction approved under this subpart, 
other than a transaction approved under Sec. 225.15, shall not be 
consummated until 30 days after the date of approval of the 
application, except that a transaction may be consummated:
    (1) Immediately upon approval, in the event that the Board has 
determined under paragraph (h) of this section that the application 
involves a probable bank failure;
    (2) On or after the fifth calendar day following the date of 
approval, in the event that the Board has determined under paragraph 
(h) of this section that an emergency exists requiring expeditious 
action; or,
    (3) On or after the fifteenth calendar day following the date of 
approval, in the event that the Board has not received any adverse 
comments from the United States Attorney General relating to the 
competitive factors and the Attorney General has consented to such 
shorter waiting period.
    4. A new Sec. 225.15 is added under Subpart B to read as follows:


Sec. 225.15  Notice Procedure for One-Bank Holding Company Formations.

    (a) Transactions which qualify under this section. An acquisition 
by a company of control of a bank may be consummated 30 days after 
providing notice to the appropriate Reserve Bank in accordance with 
paragraph (b) of this section, provided that all of the following 
conditions are met:
    (1) The shareholder or shareholders who control at least 80 percent 
of the shares of the bank would control, immediately after the 
reorganization, at least 80 percent of the shares of the holding 
company in substantially the same proportion, except for changes in 
shareholders' interests resulting from the exercise of dissenting 
shareholders' rights under State or Federal law;5

    \5\A shareholder of a bank in reorganization will be considered 
to have the same proportional interest in the holding company if the 
shareholder interest increases, on a pro rata basis, as a result of 
either the redemption of shares from dissenting shareholders by the 
bank or bank holding company or the acquisition of shares of 
dissenting shareholders by the remaining shareholders.
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    (2) No shareholder or group of shareholders acting in concert 
would, following the reorganization, own or control 10 percent or more 
of any class of voting shares of the bank holding company unless that 
shareholder or group of shareholders was authorized, after review under 
the Change in Bank Control Act of 1978 (12 U.S.C. 1817(j)) by the 
appropriate Federal banking agency for the bank, to own or control 10 
percent or more of any class of voting shares of the bank;6

    \6\This procedure is not available in cases in which the 
exercise of dissenting shareholders' rights would cause a company 
that is not a bank holding company (other than the company in 
formation) to be required to register as a bank holding company. 
This procedure also is not available for the formation of a bank 
holding company organized in mutual form.
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    (3) The bank is adequately capitalized (as defined in section 38 of 
the Federal Deposit Insurance Act (12 U.S.C. 1831o));
    (4) The bank has received at least a composite ``satisfactory'' 
rating at its most recent examination, in the event that the bank has 
been subject to an examination;
    (5) At the time of the reorganization, neither the bank nor any of 
its officers, directors or shareholders is involved in any unresolved 
supervisory or enforcement matters with any appropriate Federal banking 
agency;
    (6) The company demonstrates that any debt that it would incur at 
the time of the reorganization, and the proposed means of retiring this 
debt, would not place undue burden on the holding company or its 
subsidiary on a pro forma basis;7

    \7\For a banking organization with consolidated assets, on a pro 
forma basis, of less than $150 million (other than a banking 
organization that would control a de novo bank), this requirement 
would be satisfied if the proposal would comply with the Board's 
policy statement on small one-bank holding company formations (12 
CFR Part 225, Appendix C).
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    (7) The holding company would not, as a result of the 
reorganization, acquire control of any additional bank or engage in any 
activities other than those of managing and controlling banks; and
    (8) During this period, neither the appropriate Reserve Bank nor 
the Board has objected to the proposal or required the filing of an 
application under Sec. 225.14 of this subpart.
    (b) Contents of notice. A notice filed under this subsection must 
include:
    (1) Certification by the notificant's board of directors that the 
requirements of 12 U.S.C. 1842(a)(C) and this section are met by the 
proposal;
    (2) A list identifying the shareholders of the bank prior to the 
reorganization and of the holding company following the reorganization, 
and specifying the percentage of shares held by each shareholder in the 
bank and proposed to be held in the new holding company;
    (3) A description of the resulting management of the proposed bank 
holding company and its subsidiary bank, including:
    (i) Biographical information regarding any senior officers and 
directors of the resulting bank holding company who were not senior 
officers or directors of the bank prior to the reorganization; and,
    (ii) A detailed history of the involvement of any officer, director 
or shareholder of the resulting bank holding company in any 
administrative or criminal proceeding;
    (4) Pro forma financial statements for the holding company, and a 
description of the amount, source and terms of debt, if any, that the 
bank holding company proposes to incur, and information regarding the 
sources and timing for debt service and retirement; and,
    (5) Verification that notice of the proposal has been published in 
a newspaper of general circulation in the community in which the bank 
is located that provides an opportunity for interested persons to 
comment on the notice for a period of at least 15 calendar days.
    (c) Acknowledgement of notice. Within 7 calendar days following 
receipt of a notice under this section, the Reserve Bank shall provide 
the notificant with a written acknowledgement of receipt of the notice. 
This written acknowledgment shall indicate that the transaction 
described in the notice may be consummated on the 30th calendar day 
after the date of receipt of the notice if the Reserve Bank or the 
Board has not objected to the proposal during that time.
    (d) Application required upon objection. The Reserve Bank or the 
Board may object to a proposal during the notice period by providing 
the bank holding company with a written explanation of the reasons for 
the objection. In such case, the bank holding company may file an 
application for prior approval of the proposal pursuant to section 
225.14 of this subpart.

PART 262--RULES OF PROCEDURE

    1. The authority citation for part 262 continues to read as 
follows:

    Authority: 5 U.S.C. 552, 12 U.S.C. 321, 1828(c), and 1842.

    2. In Sec. 262.3, paragraph (b)(1)(i)(D) is revised to read as 
follows:


Sec. 262.3  Applications.

* * * * *
    (b) * * *
    (1)(i) * * *
    (D) To become a bank holding company (except as provided in 12 CFR 
225.15), and
* * * * *
    By order of the Board of Governors of the Federal Reserve 
System, effective October 26, 1994.
William W. Wiles,
Secretary of the Board.
[FR Doc. 94-27058 Filed 11-01-94; 8:45 am]
BILLING CODE 6210-01-P