[Federal Register Volume 60, Number 129 (Thursday, July 6, 1995)]
[Rules and Regulations]
[Pages 35120-35122]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-16539]



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FEDERAL RESERVE SYSTEM

12 CFR Part 225

[Regulation Y; Docket No. R-0872]


Bank Holding Companies and Change in Bank Control

AGENCY: Board of Governors of the Federal Reserve System.

ACTION: Final rule.

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SUMMARY: The Board is amending its Regulation Y to eliminate the need 
for a bank holding company to file a request with the Board for a 
determination under section 2(g)(3) of the Bank Holding Company Act 
that it no longer controls shares or assets that it has sold to a third 
party with financing if the purchaser is not an affiliate or principal 
shareholder of the divesting holding company, or a company controlled 
by the principal shareholder, and there are no officers, directors, 
trustees or beneficiaries of the acquiror in common with or subject to 
control by the divesting company. The Board believes that the 
elimination of the requirement for a determination of control for these 
types of divestitures will reduce the regulatory burden on bank holding 
companies without undermining the purposes of the Bank Holding Company 
Act. This proposal has been identified in connection with the Board's 
continuing effort to eliminate obsolete or unnecessary regulations or 
applications.

EFFECTIVE DATE: July 6, 1995.

FOR FURTHER INFORMATION CONTACT: Pamela G. Nardolilli, Senior Attorney 
(202/452-3289), Legal Division, Board of Governors of the Federal 
Reserve System. For the hearing impaired only, Telecommunication Device 
for the Deaf (TDD), Dorothea Thompson (202/452-3544), Board of 
Governors of the Federal Reserve System, 20th and C Streets, N.W., 
Washington, D.C. 20551.

SUPPLEMENTARY INFORMATION: Under section 2(g)(3) of the Bank Holding 
Company Act (12 U.S.C. 1841(g)), shares 

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transferred by a bank holding company to any transferee where the 
transferee is indebted to the transferor or has one or more officers, 
directors, trustees, or beneficiaries in common with the transferor, 
are deemed to be controlled by the transferor unless the Board, after 
an opportunity for a hearing, determines that the transferor is not 
capable of controlling the transferee. On March 28, 1995, the Board 
proposed to amend Sec. 225.32 of the Board's Regulation Y (12 CFR 
225.32) to exempt from the presumption of control those divestitures 
where a bank holding company is financing the sale of assets or shares 
that it acquired so long as (i) the property is not sold to an 
affiliate or principal shareholder of the divesting holding company, or 
a company controlled by such a principal shareholder; and (ii) there 
are no officers, directors, trustees, or beneficiaries of the acquiror 
in common with or subject to control by the divesting company (60 FR 
15881) (March 28, 1995).
    A review of the 2(g)(3) determinations over the past ten years 
indicates that almost all control determinations under that section 
have arisen from bank holding companies selling property they acquired 
in satisfaction of a debt previously contracted (dpc property) where 
the bank holding company was trying to recoup its losses on a loan from 
the sale of the collateral. In these cases, the record indicates that 
the divestitures and financing arrangements have been conducted on an 
arm's-length basis, and there is no evidence of divesting companies 
exercising control of the assets after the sale. In other cases where a 
bank holding company sold an asset or subsidiary that it had acquired 
in the normal course of business and financed the sale of the asset or 
subsidiary, the assets were sold because, in most cases, the bank 
holding company was no longer interested in engaging in that business.
    The elimination of the requirement to obtain a control 
determination will reduce the regulatory burden on bank holding 
companies without eliminating the Board's ability to supervise any 
attempt to control the divested asset in the future. Although the Board 
would no longer require a bank holding company to obtain a control 
determination, the Board can take appropriate supervisory action if 
control of a divested asset is found to persist through the examination 
process or by other means. In addition, the Board would continue to 
require a divesting company to obtain a 2(g)(3) determination if: (1) 
the asset were transferred to an affiliate or principal shareholder of 
the divesting holding company, or a company controlled by the principal 
shareholder; or (2) an interlock existed between the divesting company 
and the acquiring person. In these cases, the Board believes that there 
is a greater potential for continued control by the bank holding 
company that should be reviewed. The General Counsel will continue to 
review these divestitures on a case by case basis to determine if a 
control determination is appropriate. In addition, if a bank holding 
company needs a formal control determination for tax or other reasons, 
the Board will continue to process a request for a control 
determination even when the sale meets the regulation.

Public Comment

    The Board received sixteen comments on its proposed amendment to 
Regulation Y. The Board received eight comments from Reserve Banks, 
five comments from commercial banking organizations, two comments from 
trade associations and one comment from a law firm. All commenters 
supported the Board's effort to reduce regulatory burden. Two 
commenters suggested that the Board expand the scope of the regulation 
to include divestitures to companies with director interlocks. The 
Board receives few requests for divestitures involving interlocks and 
the Board does not believe that an exemption is needed at this time for 
these divestitures.
    The comments also raise several administrative questions regarding 
the implementation of the regulation. In response to public comment, 
the Board has modified the proposed language to clarify the 
applicability of the proposed regulation. In another comment, one 
Reserve Bank questioned the status of pending 2(g)(3) requests and 
transactions. The Board believes that any pending 2(g)(3) request or 
transaction that meets the regulation's requirements should be covered 
by the new regulation and no further action is needed. Because a 
2(g)(3) determination is a statutory requirement and some bank holding 
companies may need proof of the divestiture for tax or other reasons, 
one Reserve Bank recommended that the regulation state that if a bank 
holding company wants a 2(g)(3) determination, that the bank holding 
company can request a determination even if the regulation no longer 
requires it. As noted above, the preamble indicates that the Board will 
continue to provide 2(g)(3) determinations if a bank holding company 
requests such a determination.

Regulatory Flexibility Act Analysis

    Pursuant to section 605(b) of the Regulatory Flexibility Act (5 
U.S.C. 601 et seq.), the Board certifies that the final rule will not 
have a significant adverse economic impact on a substantial number of 
small entities and that any impact on those entities should be 
positive. The amendments would reduce regulatory burdens imposed by 
Regulation Y, and the amendment would have no particular adverse effect 
on other entities.
    Pursuant to 5 U.S.C. Sec. 553(d), the amendment to Regulation Y 
will become effective immediately. The change grants an exemption to 
bank holding companies, and therefore the Board waives the 30 days 
general requirement for publication of a substantive rule. In addition, 
any transaction that is subject to section 2(g)(3) but meets the 
regulation's requirements is now exempt and no further action is 
required.

Paperwork Reduction Act Analysis

    No collection of information pursuant to section 3504(h) of the 
Paperwork Reduction Act (44 U.S.C. 3501, et seq.) is contained in the 
final rule.

List of Subjects in 12 CFR Part 225

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

    For the reasons set forth in the preamble, the Board amends 12 CFR 
part 225 as set forth below:

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

    1. The authority citation for 12 CFR 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(l), 3106, 3108, 3310, 3331-3351, 3907, and 
3909.

    2. In Sec. 225.32, paragraph (a)(2) is redesignated as paragraph 
(a)(3) and a new paragraph (a)(2) is added to read as follows:


Sec. 225.32  Divestiture proceedings.

    (a) * * *
    (2) Except in the case of a proceeding initiated under paragraph 
(f) of this section or Sec. 225.31 of this subpart, the Board will 
regard the presumption of control in paragraph (a)(1)(i) of this 
section and section 2(g)(3) of the Bank Holding Company Act as 
inapplicable in the case of the sale or divestiture of assets or voting 
securities by a divesting company if: 

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    (i) The acquiring person is not an affiliate or a principal 
shareholder of the divesting company, or a company controlled by such a 
principal shareholder; and
    (ii) The acquiring person does not have any officer, director, 
trustee, or beneficiary in common with or subject to control by the 
divesting company.
* * * * *
    By order of the Board of Governors of the Federal Reserve 
System, June 29, 1995.
William W. Wiles,
Secretary of the Board.
[FR Doc. 95-16539 Filed 7-5-95; 8:45 am]
BILLING CODE 6210-01-P