[Federal Register Volume 65, Number 16 (Tuesday, January 25, 2000)]
[Rules and Regulations]
[Pages 3785-3794]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-1646]


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FEDERAL RESERVE SYSTEM

12 CFR Part 225

[Regulation Y; Docket No. R-1057]


Bank Holding Companies and Change in Bank Control

AGENCY:  Board of Governors of the Federal Reserve System.

ACTION:  Interim rule with request for public comments.

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SUMMARY:  The Board of Governors of the Federal Reserve System is 
adopting on an interim basis effective March 11, 2000, and soliciting 
comment on a rule that establishes procedures for bank holding 
companies as well as foreign banks that operate a branch, agency, or 
commercial lending company in the United States to elect to become 
financial holding companies. The interim rule includes amended 
definitions of terms in existing Subpart A that are applicable to the 
new Subpart. The Board is promulgating this rule to implement 
provisions of the recently enacted Gramm-Leach-Bliley Act that enable 
bank holding companies and foreign banks that meet applicable statutory 
requirements to become financial holding companies and thereby engage 
in a broader range of financial and other activities than are 
permissible for bank holding companies.
    The new Subpart sets forth the procedures by which bank holding 
companies and foreign banks may submit to the Board an election to 
become a financial holding company and describes the period in which 
the Board will act on financial holding company elections. This Subpart 
also enumerates the criteria that bank holding companies and foreign 
banks must meet in order to qualify as a financial holding company. In 
addition, the newly added sections set forth the limitations that the 
Board will apply to financial holding companies that fail to maintain 
compliance with applicable capital, management, and CRA criteria.

[[Page 3786]]

    The Board has promulgated this Subpart on an interim basis, 
effective on March 11, 2000, in order to allow bank holding companies 
and foreign banks that meet applicable qualifications to become 
financial holding companies as soon as possible following the effective 
date of the relevant provisions of the Gramm-Leach-Bliley Act. The 
Board will allow bank holding companies and foreign banks to file 
elections in anticipation of the effective date of the Act and the 
interim rule and will review elections as promptly as possible after 
the effective date. The Board anticipates that as soon as March 13, 
2000, the Board will begin notifying qualifying companies that 
elections filed in accordance with the interim rule are effective. This 
will enable companies that the Board determines qualify as financial 
holding companies to take advantage of the new powers granted by the 
Gramm-Leach-Bliley Act as early as March 13, 2000, which is the first 
business day following the effective date of the financial holding 
company provisions of the Act.
    The Board solicits comments on all aspects of the interim rule and 
will amend the rule as appropriate in response to comments received.

DATES:  This interim rule is effective on March 11, 2000. Comments must 
be received by March 27, 2000.

ADDRESSES:  Comments should refer to docket number R-1057 and should be 
sent to Ms. Jennifer J. Johnson, Secretary, Board of Governors of the 
Federal Reserve System, 20th Street and Constitution Avenue, N.W., 
Washington, D.C. 20551. Comments addressed to Ms. Johnson also may be 
delivered to the Board's mail room between the hours of 8:45 a.m. and 
5:15 p.m. and, outside of those hours, to the Board's security control 
room. Both the mail room and the security control room are accessible 
from the Eccles Building courtyard entrance, located on 20th Street 
between Constitution Avenue and C Street, N.W. Members of the public 
may inspect comments in Room MP-500 of the Martin Building between 9:00 
a.m. and 5:00 on weekdays.

FOR FURTHER INFORMATION CONTACT:  Thomas M. Corsi, Managing Senior 
Counsel (202/452-3275), Ann E. Misback, Managing Senior Counsel (202/
452-3788), Christopher W. Clubb, Counsel (202/452-3904), or Adrianne G. 
Threatt, Attorney (202/452-3554), Legal Division; Betsy Cross, 
Assistant Director (202/452-2574) or Melissa W. Clark, Manager, Global/
International Applications (202/452-2277), Division of Banking 
Supervision and Regulation; Board of Governors of the Federal Reserve 
System, 20th Street and Constitution Avenue, N.W., Washington, D.C. 
20551.

SUPPLEMENTARY INFORMATION:

Background

    Title I of the Gramm-Leach-Bliley Act (Pub. L. No. 106-102, 113 
Stat. 1338 (1999)) repeals sections 20 and 32 of the Glass-Steagall Act 
(12 U.S.C. Secs. 377 and 78, respectively) and is intended to 
facilitate affiliations among banks, securities firms, insurance firms, 
and other financial companies. To further this goal, the Gramm-Leach-
Bliley Act amends section 4 of the Bank Holding Company Act (12 U.S.C. 
Sec. 1843) (``BHC Act'') to authorize bank holding companies and 
foreign banks that qualify as ``financial holding companies'' to engage 
in securities, insurance and other activities that are financial in 
nature or incidental to a financial activity. The activities of bank 
holding companies and foreign banks that are not financial holding 
companies would continue to be limited to activities authorized 
currently under the BHC Act, such as activities that the Board 
previously has determined in regulations and orders issued under 
section 4(c)(8) of the BHC Act to be closely related to banking and 
permissible for bank holding companies.
    The Gramm-Leach-Bliley Act defines a financial holding company as a 
bank holding company that meets certain eligibility requirements. In 
order for a bank holding company to become a financial holding company 
and be eligible to engage in the new activities authorized under the 
Gramm-Leach-Bliley Act, the Act requires that all depository 
institutions controlled by the bank holding company be well capitalized 
and well managed. With regard to a foreign bank that operates a branch 
or agency or owns or controls a commercial lending company in the 
United States, the Act requires the Board to apply comparable capital 
and management standards that give due regard to the principle of 
national treatment and equality of competitive opportunity.
    To become a financial holding company, the Gramm-Leach-Bliley Act 
requires a bank holding company to submit to the Board a declaration 
that the company elects to be a financial holding company and a 
certification that all of the depository institutions controlled by the 
company are well capitalized and well managed. The Act also provides 
that a bank holding company's election to become a financial holding 
company will not be effective if the Board finds that, as of the date 
the company submits its election to the Board, not all of the insured 
depository institutions controlled by the company have achieved at 
least a ``satisfactory'' rating at the most recent examination of the 
institution under the Community Reinvestment Act (12 U.S.C. Sec. 2903 
et seq.) (``CRA'').
    The Gramm-Leach-Bliley Act grants the Board discretion to impose 
limitations on the conduct or activities of any financial holding 
company that controls a depository institution that does not remain 
both well capitalized and well managed following the company's election 
to be a financial holding company. The Act also requires the Board to 
prohibit a financial holding company from commencing additional 
activities under new subsection 4(k) or 4(n) of the BHC Act, or from 
acquiring control of companies engaged in such activities, if any 
insured depository institution controlled by the company fails to 
maintain at least a satisfactory CRA rating.

Interim Rule

    In order to implement the provisions of the Gramm-Leach-Bliley Act 
governing the creation and conduct of financial holding companies, the 
Board is amending its Regulation Y by adding a Subpart I that (a) 
defines the term ``financial holding company'' and establishes 
procedures by which a bank holding company may become a financial 
holding company; (b) enumerates the criteria a bank holding company 
must meet in order for the Board to determine that an election is 
effective and describes the period within which the Board will act on 
an election; (c) sets forth the consequences if any depository 
institution controlled by a financial holding company fails to remain 
well capitalized and well managed, or if any insured depository 
institution controlled by the financial holding company fails to 
maintain at least a satisfactory CRA rating; and (d) specifically 
addresses procedures and requirements applicable to foreign banking 
organizations that seek to be treated as financial holding companies.
    The Board welcomes comment on all parts of the interim rule.

Section 225.81  What is a Financial Holding Company?

    The Gramm-Leach-Bliley Act defines a financial holding company as a 
bank holding company that meets certain specific requirements. In 
accordance with the Act, section 225.81 provides that, in order to 
qualify as a financial holding company, all depository institutions 
controlled by the company at the time of the election must be and

[[Page 3787]]

remain well capitalized and well managed, and the company must have 
made an effective election to become a financial holding company as 
described in section 225.82. The definition of the terms ``well 
capitalized'' and ``well managed'' are described below and are based on 
specific capital levels and examination ratings.

Section 225.82  How Does a Company Elect to Become a Financial Holding 
Company?

    Subsection (a) provides that a bank holding company wishing to 
become a financial holding company must file a written declaration with 
the Board stating that the bank holding company elects to be a 
financial holding company. The Board envisions that a company's 
election to become a financial holding company could be a short and 
simple document signed by an official or representative with authority 
to bind the company. Subsection (b) sets forth the information required 
as part of a declaration, which is limited to information about the 
location and capital position of each of the depository institutions 
controlled by the company, and a certification that each such 
institution is both well capitalized and well managed as of the date 
the election is filed.
    The Gramm-Leach-Bliley Act provides that an election to be a 
financial holding company is ineffective if the Board finds, within a 
specified period, that any insured depository institution controlled by 
the bank holding company (other than a recently acquired institution) 
does not have at least a satisfactory CRA performance rating. 
Subsection (c) implements this provision. The interim rule also 
provides that an election is ineffective if the Board finds during this 
period that any depository institution controlled by the bank holding 
company is not well managed and well capitalized, as these terms are 
objectively defined, as of the date of the election.
    The Board recognizes that there may be instances in which a bank 
holding company meets the statutory requirements to be a financial 
holding company but on a consolidated basis is not well capitalized and 
well managed or does not have adequate financial or managerial 
resources to conduct financial activities in a safe and sound manner. 
Under these circumstances, the Board may have significant supervisory 
concerns about the ability of the company to conduct additional 
activities or make additional acquisitions. Subsection (d) reserves the 
general supervisory authority of the Board to restrict or limit the 
commencement or conduct of activities or acquisitions of a financial 
holding company if the Board finds that the financial holding company 
lacks the financial or managerial strength to engage in new activities, 
make new acquisitions, or retain ownership of companies engaged in 
financial activities.
    Subsection (e) describes circumstances under which the Gramm-Leach-
Bliley Act allows the Board to exclude an insured depository 
institution when reviewing whether a bank holding company meets the 
applicable CRA requirement for financial holding companies. As provided 
in the Act, the Board will not consider institutions acquired by the 
company within the 12-month period preceding an election to be a 
financial holding company for purposes of the CRA criteria provided 
that (i) the bank holding company has submitted a plan to the 
appropriate Federal banking agency for the institution to take actions 
necessary to achieve at least a ``satisfactory'' rating at the next CRA 
examination, and (ii) the appropriate Federal banking agency has 
accepted that plan.
    Subsection (f) provides that, as a general matter, an election by a 
bank holding company to become a financial holding company will be 
effective on the 31st day after the election was received by the 
appropriate Federal Reserve Bank, unless the Board has notified the 
bank holding company prior to that date that its election is 
ineffective because an institution controlled by the company fails to 
meet an applicable requirement. The interim rule provides that the 
Board or the appropriate Federal Reserve Bank may affirmatively notify 
a bank holding company that an election is effective at any time during 
that 30-day period.
    As noted above, the Board proposes to adopt the proposed rule on an 
interim basis, effective March 11, 2000 (which is the effective date of 
the financial holding company provisions of the Gramm-Leach-Bliley 
Act). This will allow bank holding companies and foreign banks that 
meet the qualifications to be financial holding companies to take 
advantage of the new authority granted by the Gramm-Leach-Bliley Act as 
soon as possible following the effective date of the relevant 
provisions of the Act.
    The Board also proposes to allow bank holding companies and foreign 
banks to file elections to become financial holding companies 
immediately in anticipation of the effective date of the Act and 
interim rule. These elections will be considered to be made as of March 
11, 2000, and must certify compliance with all applicable capital and 
management criteria as of March 11, 2000. While the 30-day period for 
ineligibility decisions does not begin on any election until the 
effective date of the Act, the Board will endeavor on March 13, 2000, 
which is the first business day following the effective date of the 
financial holding company provisions of the Act, to act on elections 
filed prior to February 15, 2000. The Board will act on all other 
elections as soon as practicable. Prior to the date that its election 
to become a financial holding company becomes effective, a bank holding 
company may not engage in the newly authorized activities described in 
new sections 4(k), 4(n), and 4(o) of the BHC Act.
    Companies that are not now bank holding companies and seek to 
acquire a depository institution must still apply to the Board to 
become a bank holding company under section 3 of the BHC Act. A company 
may file a bank holding company application and a declaration to be a 
financial holding company at the same time. In that case, it is 
expected that the System would act to make the financial holding 
company election effective at the time the System acts on the 
underlying bank holding company application. Consequently, the company 
could become a financial holding company without filing a separate 
election after the company becomes a bank holding company.

Section 225.83  What Are the Consequences of Ceasing to Meet Applicable 
Capital and Management Requirements?

    This section implements the provisions of the Gramm-Leach-Bliley 
Act that apply when a depository institution controlled by an existing 
financial holding company ceases to be both well capitalized and well 
managed. Subsection (a) states that the Board will notify a company in 
writing if the Board finds that not all depository institutions 
controlled by the company are well capitalized and well managed. In 
recognition of the fact that a company may know that one of its 
subsidiary depository institutions has ceased to be well capitalized or 
well managed before the Board will have access to such data, subsection 
(b) requires companies to notify the Board of the institutions involved 
and the areas of noncompliance promptly upon becoming aware of that the 
institution no longer meets applicable capital or management criteria.
    Subsection (c) provides that, within 45 days (plus any additional 
time that the Board may grant) after receiving a

[[Page 3788]]

notice of noncompliance from the Board, the company must execute an 
agreement with the Board to comply with applicable capital and 
management requirements. An agreement required by this subsection to 
correct a capital or management deficiency must explain the actions 
that the company will take to correct each deficiency, provide a 
schedule within which each action will be taken, provide any other 
information required by the Board, and be acceptable to the Board.
    Until a company has corrected the conditions described in a notice 
provided by the Board under subsection (a), the Gramm-Leach-Bliley Act 
allows the Board to impose any limitations on the conduct or activities 
of the company or any of its affiliates as the Board deems to be 
appropriate and consistent with the purposes of the BHC Act. In 
particular, subsection (d) states that, until the Board determines that 
all deficiencies have been corrected, a company may not engage in any 
additional activity or acquire control or shares of any company under 
section 4(k) of the BHC Act without prior approval from the Board.
    Subsection (e) provides that, if the conditions giving rise to a 
notice of noncompliance are not corrected within 180 days (or such 
longer period permitted by the Board), the Board may order the company 
to divest its subsidiary depository institutions. A company may comply 
with an order to divest by instead ceasing to engage in activities that 
are permissible only for financial holding companies. The Board's 
ability to require divestitures and impose limitations on financial 
holding companies that fail to meet the capital and management 
requirements is in addition to, not in lieu of, the Board's ability to 
take supervisory actions and enforce compliance with applicable 
provisions of law under section 8 of the BHC Act and section 8 of the 
Federal Deposit Insurance Act (12 U.S.C. 1818).

Section 225.84  What Are the Consequences of Ceasing to Maintain a 
Satisfactory or Better Rating Under the Community Reinvestment Act at 
All Insured Depository Institution Subsidiaries?

    The Gramm-Leach-Bliley Act requires the Board to prohibit a 
financial holding company from commencing any additional activity under 
sections 4(k) or 4(n) of the BHC Act, or from acquiring control of a 
company engaged in activities under those sections, if any insured 
depository institution controlled by the company receives a rating of 
less than ``satisfactory'' under the CRA. Subsection (a) provides that 
a financial holding company is deemed to have received notice that 
these prohibitions are in effect at the time the appropriate Federal 
banking agency for any insured depository institution controlled by the 
company or the Board notifies the institution or company that the 
institution has received a rating of ``needs to improve'' or 
``substantial noncompliance'' under the CRA. The prohibitions will 
continue to apply until such time as each insured depository 
institution controlled by the company has received at least a 
``satisfactory'' rating at its most recent examinations under the CRA.
    This prohibition does not prevent a financial holding company from 
making additional investments as part of merchant banking, investment 
banking, or insurance company investment activities pursuant to section 
4(k)(4)(H) or 4(k)(4)(I) of the BHC Act, provided that the company was 
lawfully engaged in the merchant banking, investment banking, or 
insurance company investment activity prior to the time that one of its 
insured depository institutions received less than a ``satisfactory'' 
rating under the CRA and the Board has not prohibited or limited these 
activities.
    Under the Gramm-Leach-Bliley Act, financial holding companies that 
do not comply with the CRA requirement are not prohibited from making 
acquisitions or engaging in activities that meet the more narrow 
``closely related to banking'' standard pursuant to 4(c)(8). Financial 
holding companies that seek to engage in activities or make 
acquisitions pursuant to section 4(c)(8) of the BHC Act must, however, 
comply with the requirements of that section as well as the notice and 
approval requirements of section 4(j).

Section 225.90  What are the Requirements for a Foreign Bank to be 
Treated as a Financial Holding Company?

    A foreign bank that is a bank holding company because it owns a 
subsidiary bank in the United States must comply with the same 
requirements as any other bank holding company that elects to be a 
financial holding company. Most foreign banks, however, do not own 
subsidiary banks in the United States; instead, they operate through 
branches that are part of the foreign bank itself.\1\ If a foreign bank 
operates a U.S. branch, the foreign bank (and any company that controls 
the foreign bank) is subject to the BHC Act as if the foreign bank or 
company were a bank holding company. Such foreign banks may, like U.S. 
bank holding companies, also elect to be treated as financial holding 
companies and thereby be able to engage in the new financial 
activities.
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    \1\ A foreign bank that operates a branch, agency or commercial 
lending company subsidiary in the United States is subject to the 
BHC Act as if it were a bank holding company. In this notice, the 
term ``branch'' is used to include all three forms of operation.
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    Under the Gramm-Leach-Bliley Act, a company qualifies to be a 
financial holding company only if its insured bank and thrift 
subsidiaries are well capitalized and well managed. These standards are 
not by their terms applicable to the branches of a foreign bank. 
Consequently, the Act provides that ``the Board shall apply comparable 
capital and management standards to a foreign bank that operates a 
branch * * * in the United States giving due regard to the principle of 
national treatment and equality of competitive opportunity.'' The 
provision is necessary because it would be competitively harmful if a 
foreign bank that conducts a banking business in the United States in 
direct competition with U.S. banks could be treated as a financial 
holding company without meeting standards comparable to those 
applicable to U.S. banks. Without such a provision, a foreign bank 
could make securities and insurance acquisitions without meeting 
standards comparable to those applicable to U.S. banks, simply because 
the foreign bank conducts its U.S. banking business through a branch 
rather than through a subsidiary bank.
    As described below, the Board is proposing to adopt standards and 
procedures that establish a flexible approach to carry out the 
statutory requirement for comparability of capital and management 
standards while, at the same time, assuring national treatment and 
equality of competitive opportunity for foreign banks operating in the 
United States.
    Section 225.90 of the new Subpart sets forth the capital and 
management standards that foreign banks that maintain a branch, agency, 
or commercial lending company in the United States must meet in order 
to be considered to be ``well capitalized'' and ``well managed'' for 
purposes of being treated as financial holding companies. Under section 
225.90, in order for a foreign bank or company to be treated as a 
financial holding company, the foreign bank must be well capitalized 
and well managed in accordance with standards comparable to those 
required of U.S. banks as determined by the Board, taking into account 
certain financial factors that may affect the analysis of capital and 
management.

[[Page 3789]]

    Section 225.90 provides two methods under which a foreign bank may 
be considered well capitalized. The first method is applicable to 
foreign banks whose home country supervisors have adopted risk-based 
capital standards consistent with the Capital Accord of the Basel 
Committee on Banking Supervision (Basel Accord). Under this method, the 
foreign bank's total and Tier 1 risk-based capital ratios, as 
calculated under its home country standard, must be at least 6 percent 
for Tier 1 capital to total risk-based assets and 10 percent for total 
capital to risk-based assets.
    In addition, section 225.90 requires that the foreign bank's ratio 
of Tier 1 capital to total assets must be at least 3 percent. The Board 
solicits comment on this requirement. The Board believes that the 
imposition of a leverage ratio requirement on a foreign bank 
maintaining a branch, agency, or commercial lending company in the 
United States and that elects to be treated as a financial holding 
company is appropriate in order to ensure that the capital standards 
applicable to foreign banking organizations are comparable to those for 
domestic depository institutions. In addition, the Board believes that 
imposing a 3 percent leverage ratio requirement, rather than the 5 
percent required for domestic depository institutions, is appropriate 
in recognition of the fact that foreign banks hold both banking and 
nonbanking operations under the foreign bank. Domestic bank holding 
companies, which also hold banking and nonbanking operations, are 
subject under Regulation Y to a minimum leverage ratio of 4 percent, or 
3 percent if they have implemented the market risk amendment to the 
risk-based capital guidelines or have a composite supervisory rating of 
``1.'' Most internationally active foreign banks also follow the market 
risk guidelines.
    The Board recognizes that many countries do not impose a leverage 
ratio or similar requirements. U.S. banks are, however, subject to a 
leverage ratio requirement and in order to assure comparability of 
capital standards, a leverage ratio requirement for foreign banks is 
being proposed.
    The second method for a foreign banking organization to be 
considered well capitalized in section 225.90 applies to foreign banks 
whose home country supervisors have not adopted the Basel Accord 
standards and to any other foreign banking organizations that otherwise 
do not meet the standards set out under the first method. Any such 
institution may be considered ``well capitalized'' only by obtaining 
from the Board a prior determination that its capital is otherwise 
comparable to the capital that would be required of a U.S. bank.
    In order to qualify as well managed under section 225.90, each U.S. 
branch, agency, and commercial lending company of a foreign banking 
organization must have received at least a satisfactory composite 
rating at the most recent assessment. In addition, the home country 
supervisor of the foreign bank must consider the overall operations of 
the foreign bank to be satisfactory.
    In determining whether a foreign bank is well capitalized and well 
managed, the Board may take into account the foreign bank's composition 
of capital, accounting standards, long-term debt ratings, reliance on 
government support to meet capital standards, the extent to which the 
foreign bank is subject to comprehensive consolidated supervision, and 
other factors that may affect the analysis of capital and management. 
The Board will consult with the home country supervisor for the foreign 
bank as appropriate. The information gathered under these factors will 
assist the Board in determining whether the foreign bank operates under 
capital and managerial standards that are comparable to those applied 
to U.S. banks. The Board expects that most foreign banks that elect to 
be treated as financial holding companies will be subject to 
comprehensive consolidated supervision. An election by a foreign bank 
that is not subject to comprehensive consolidated supervision will 
receive a more detailed review.

Section 225.91  How May a Foreign Bank Elect To be Treated as a 
Financial Holding Company?

    The procedures applicable to a foreign bank, or company that owns 
or controls the foreign bank, electing to become a financial holding 
company are similar to the procedures discussed above for domestic bank 
holding companies. The foreign bank or company must file a written 
declaration with the appropriate Reserve Bank that it elects to be 
treated as a financial holding company. The declaration must be 
accompanied by the risk-based and leverage capital ratios of the 
foreign bank as of the close of the most recent quarter and as of the 
close of the most recent audited reporting period, a certification that 
the foreign bank is well capitalized as of the date the foreign bank or 
company files its election, and a certification that the foreign bank 
is well managed as of the date the foreign bank or company files its 
election.

Section 225.92  How Does an Election by a Foreign Bank Become 
Effective?

    An election filed by a foreign bank or company to become a 
financial holding company under section 225.91 will not become 
effective until the Board notifies the foreign bank or company that the 
foreign bank meets the standards set out above. The Board will notify 
the foreign bank or company of its finding within 30 days of the filing 
of the written declaration, unless the Board determines that it does 
not have sufficient information on which to base a determination. 
Before filing an election to be treated as a financial holding company, 
a foreign bank or company may file with the Board a request for review 
of its qualifications to be treated as a financial holding company. The 
Board will endeavor to make a determination on such requests within 30 
days of receipt.
    An election filed by a foreign bank or company under this section 
will be effective only if the Board finds that the foreign bank is well 
capitalized and well managed in accordance with capital and management 
standards comparable to those required of U.S. banks owned by financial 
holding companies, and, in the case of a foreign bank that operates a 
branch in the United States that is federally insured, the branch 
received a rating of at least ``satisfactory'' under the CRA at its 
most recent examination.

Section 225.93  What are the Consequences of a Foreign Bank Failing to 
Continue to Meet Applicable Capital and Management Requirements?

    This section parallels section 225.83, with appropriate 
modifications. It sets forth the procedures to be followed in the event 
that a foreign bank that is treated as a financial holding company 
ceases to meet the applicable capital and management requirements. It 
provides for the execution of an agreement designed to bring the 
foreign bank back into compliance with the requirements of the 
regulation and permits the Board to impose certain limitations on the 
U.S. activities of such a foreign bank during any period of 
noncompliance. Finally, the section sets forth the consequences of a 
failure to correct the noncompliance within a period of 180 days. Such 
consequences could include termination of the foreign bank's U.S. 
branches and agencies and divestiture of its commercial lending company 
subsidiaries or ceasing to engage in the expanded activities permitted 
for financial holding companies.

[[Page 3790]]

Section 225.94  What are the Consequences of an Insured Branch Failing 
to Maintain a Satisfactory or Better Rating Under the Community 
Reinvestment Act?

    This section provides that the provisions of section 225.84, with 
appropriate modifications, apply to a foreign bank that operates an 
insured branch, and its parent, and that is treated as a financial 
holding. For these purposes, the insured branch is treated as an 
``insured depository institution.''

Subpart A  General Provisions; Section 225.2--Definitions

    The Board also is amending the definitions of ``well capitalized'' 
and ``well managed'' at sections 225.2(r)(2) and 225.2(s) to take 
account of the broader applicability of these definitions under the 
Gramm-Leach-Bliley Act. The definition of well capitalized has been 
amended to apply to all depository institutions, rather than insured 
depository institutions. The rule applies the same capital requirements 
to depository institutions that are not FDIC-insured for purposes of 
determining whether the institution is well capitalized as apply to 
insured depository institutions.
    The definition of well managed has, in the case of depository 
institutions that have not received an examination rating, been amended 
in subparagraph (1)(ii) to allow the Board to determine that an 
institution is well managed after consulting with the appropriate 
Federal banking agency for the institution. In addition, the rule 
provides that a depository institution resulting from the merger of two 
or more institutions that are well managed would be considered to be 
well managed unless the Board determined otherwise after consulting 
with the appropriate Federal banking agency.

Regulatory Flexibility Act Analysis

    In accordance with section 3(a) of the Regulatory Flexibility Act 
(5 U.S.C. 603(a)), the Board must publish an initial regulatory 
flexibility analysis with this interim regulation. This rule implements 
provisions of Title I of the Gramm-Leach-Bliley Act that allow entities 
that qualify as financial holding companies to engage in a broad range 
of securities, insurance, and other financial activities by providing 
the Board with a simple, post-commencement notice. The interim rule 
will enable bank holding companies and foreign banks that qualify as 
financial holding companies to engage in an expanded range of 
activities using a streamlined notification procedure.
    The financial holding company election procedure described in this 
rule is voluntary, and the criteria set forth in the rule for an 
effective election filing are those required by the Gramm-Leach-Bliley 
Act. The Board has established a simple, one-time procedure involving 
minimum paperwork to fulfill the statutory election requirement. In 
addition, the new powers described in the Act and implemented by this 
regulation should enhance the overall efficiency of bank holding 
companies and the other financial companies that seek to affiliate with 
them. The rule applies to all companies that attempt to qualify as 
financial holding companies, regardless of their size, and allows small 
organizations to take advantage of the broad new powers conferred by 
the Gramm-Leach-Bliley Act with minimal additional burden. Finally, the 
Board specifically seeks comment on the likely burden this interim rule 
will impose on entities that elect to become financial holding 
companies.

Administrative Procedure Act

    The Board will make this interim rule effective on March 11, 2000 
without first reviewing public comments. Pursuant to 5 U.S.C. Sec. 553, 
the Board finds that it is impracticable to review public comments 
prior to the effective date of the interim 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 Board is seeking 
public comment on the interim rule and will amend the rule as 
appropriate after reviewing the comments.

Paperwork Reduction Act

    In accordance with section 3506 of the Paperwork Reduction Act of 
1995 (44 U.S.C. Ch. 35; 5 CFR 1320 Appendix A.1), the Board reviewed 
the proposed rule under the authority delegated to the Board by the 
Office of Management and Budget in accordance with the emergency review 
procedures of the Paperwork Reduction Act of 1995.
    The collection of information requirements in this proposed 
rulemaking are found in 12 CFR 225.82 (a) and (b). This information is 
required to evidence compliance with the requirements of Title I of the 
Gramm-Leach-Bliley Act (Pub. L. No. 106-103, 113 Stat. 1338 (1999)) 
which amends section 4 of the Bank Holding Company Act (12 U.S.C. 
1843). The respondents are current and future bank holding companies 
and foreign banking organizations.
    The notice cited in 12 CFR 225.82(b) provides that a bank holding 
company may elect to become a financial holding company by filing a 
simple written declaration with the Federal Reserve. The declaration 
must include information identifying the company's subsidiary 
depository institutions and their capital ratios, and a certification 
that each depository institution is well capitalized and well managed 
(for specific details, see 12 CFR 225.82(b)). There will be no 
reporting form for this information collection. The agency form number 
for this declaration will be the FR 4010. The Board estimates that 
approximately half of all bank holding companies will file this 
declaration during the first year and that it will take on average 
approximately 15 minutes to complete this information. This would 
result in estimated annual burden of 625 hours. Based on a rate of $20 
per hour, the annual cost to the public for this information collection 
is estimated to be $12,500.
    The OMB control number for this interim rule is 7100-0292. The 
Federal Reserve may not conduct or sponsor, and an organization is not 
required to respond to this information collection unless the Board has 
displayed a valid OMB control number.
    A bank holding company may request confidentiality for the 
information contained in these information collections pursuant to 
section (b)(4) and (b)(6) of the Freedom of Information Act (5 U.S.C. 
552(b)(4) and (b)(6)).
    Comments are invited on: (a) whether the proposed collection of 
information is necessary for the proper performance of the Federal 
Reserve's functions; including whether the information has practical 
utility; (b) the accuracy of the Federal Reserve's estimate of the 
burden of the proposed information collection, including the cost of 
compliance; (c) ways to enhance the quality, utility, and clarity of 
the information to be collected; and (d) ways to minimize the burden of 
information collection on respondents, including through the use of 
automated collection techniques or other forms of information 
technology. Comments on the collection of information should be sent to 
the Office of Management and Budget, Paperwork Reduction Project, 
Washington, DC 20503, with copies of such comments to be sent to Mary 
M. West, Federal Reserve Board Clearance Officer, Division of Research 
and Statistics, Mail Stop 97, Board of Governors of the Federal Reserve 
System, Washington, DC 20551.

[[Page 3791]]

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 out in the preamble, the Board amends 12 CFR 
part 225 as follows:

PART 225--BANK HOLDING COMPANY 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, 1828(o), 1831(i), 
1831p-1, 1843(c)(8), 1844(b), 1972(l), 3106, 3108, 3310, 3331-3351, 
3907, and 3909.

    2. Section 225.2(r)(2) and (s) are revised to read as follows:


Sec. 225.2  Definitions.

* * * * *
    (r) * * *
    (2) Insured and uninsured depository institutions-- (i) Insured 
depository institution. In the case of an insured depository 
institution, ``well capitalized'' means that the institution has and 
maintains at least the capital levels required to be well capitalized 
under the capital adequacy regulations or guidelines applicable to the 
institution that have been adopted by the appropriate Federal banking 
agency for the institution under section 38 of the Federal Deposit 
Insurance Act (12 U.S.C. 1831o).
    (ii) Uninsured depository institution. In the case of a depository 
institution the deposits of which are not insured by the Federal 
Deposit Insurance Corporation, ``well capitalized'' means that the 
institution has and maintains at least the capital levels required for 
an insured depository institution to be well capitalized.
* * * * *
    (s) Well managed--(1) In general. A company or depository 
institution is well managed if:
    (i) At its most recent inspection or examination or subsequent 
review by the appropriate Federal banking agency for the company or 
institution, the company or institution received:
    (A) At least a satisfactory composite rating; and
    (B) At least a satisfactory rating for management and for 
compliance, if such a rating is given; or
    (ii) In the case of a company or depository institution that has 
not received an examination rating, the Board has determined, after a 
review of managerial and other resources of the company or depository 
institution and after consulting the appropriate Federal banking agency 
for the institution, that the company or institution is well managed.
    (2) Merged institutions. A depository institution that results from 
the merger of two or more depository institutions that are well managed 
shall be considered to be well managed unless the Board determines 
otherwise after consulting with the appropriate Federal banking agency 
for each depository institution involved in the merger.
    (3) Foreign banking organizations. Except as otherwise provided in 
this part, a foreign banking organization shall qualify under this 
paragraph(s) if the combined operations of the foreign banking 
organization in the United States have received at least a satisfactory 
composite rating at the most recent annual assessment.

    3. A new Subpart I is added after Subpart H to read as follows:

Subpart I--Financial Holding Companies

225.81  What is a financial holding company?
225.82  How does a company elect to become a financial holding 
company?
225.83  What are the consequences of failing to continue to meet 
applicable capital and management requirements?
225.84  What are the consequences of failing to maintain a 
satisfactory or better rating under the Community Reinvestment Act 
at all insured depository institution subsidiaries?
225.90  What are the requirements for a foreign bank to be treated 
as a financial holding company?
225.91  How may a foreign bank elect to be treated as a financial 
holding company?
225.92  How does an election by a foreign bank become effective?
225.93  What are the consequences of a foreign bank failing to 
continue to meet applicable capital and management requirements?
225.94  What are the consequences of an insured branch failing to 
maintain a satisfactory or better rating under the Community 
Reinvestment Act?

Subpart I--Financial Holding Companies


Sec. 225.81  What is a financial holding company?

    (a) Definition. A financial holding company is a bank holding 
company that meets the requirements of this section.
    (b) Requirements to be a financial holding company. In order to be 
a financial holding company:
    (1) All depository institutions controlled by the bank holding 
company must be and remain well capitalized;
    (2) All depository institutions controlled by the bank holding 
company must be and remain well managed; and
    (3) The bank holding company must have made an effective election 
to become a financial holding company.
    (c) Requirements for foreign banks that are or are owned by bank 
holding companies--(1) Foreign banks with U.S. branches or agencies. A 
foreign bank that is a bank holding company and that operates a branch 
or agency or owns or controls a commercial lending company in the 
United States must comply with the requirements of this section, 
Sec. 225.82 and Secs. 225.90 through 225.93 in order to be a financial 
holding company.
    (2) Bank holding companies that own foreign banks with U.S. 
branches or agencies. A bank holding company that owns a foreign bank 
that operates a branch or agency or owns or controls a commercial 
lending company in the United States must comply with the requirements 
of this section and Sec. 225.82, and the foreign bank must comply with 
Secs. 225.90 through 225.93 in order for the company to be a financial 
holding company.


Sec. 225.82  How does a company elect to become a financial holding 
company?

    (a) Filing requirement. A bank holding company may elect to become 
a financial holding company by filing a written declaration with the 
appropriate Federal Reserve Bank.
    (b) Contents of declaration. The declaration must:
    (1) State that the bank holding company elects to be a financial 
holding company;
    (2) Provide the name and head office address of the company and of 
each depository institution controlled by the company;
    (3) Certify that all depository institutions controlled by the 
company are well capitalized as of the date the company files its 
election;
    (4) Provide the capital ratios for all relevant capital measures 
(as defined in section 38 of the Federal Deposit Insurance Act) as of 
the close of the previous quarter for each depository institution 
controlled by the company on the date the company files its election; 
and
    (5) Certify that all depository institutions controlled by the 
company are well managed as of the date the company files its election.
    (c) Under what circumstances will the Board find an election to be 
ineffective? An election to become a financial holding company shall 
not be effective if, during the period provided in paragraph (f) of 
this section, the Board

[[Page 3792]]

finds that as of the date the election is received by the appropriate 
Federal Reserve Bank:
    (1) Any insured depository institution controlled by the bank 
holding company (except an institution excluded under paragraph (e) of 
this section) has not achieved at least a rating of ``satisfactory 
record of meeting community credit needs'' under the Community 
Reinvestment Act at the institution's most recent examination; or
    (2) Any depository institution controlled by the bank holding 
company is not both well capitalized and well managed.
    (d) May the Board impose supervisory limits on financial holding 
companies? The Board may, in the exercise of its supervisory authority, 
restrict or limit the commencement or conduct of additional activities 
or acquisitions of a financial holding company, or take other 
appropriate action, if the Board finds that the financial holding 
company does not have the financial resources, including capital 
resources, or managerial resources to engage in activities, make 
acquisitions, or retain ownership of companies permitted for financial 
holding companies.
    (e) How is CRA performance of recently acquired insured depository 
institutions considered? An insured depository institution will be 
excluded for purposes of the review of CRA ratings described in 
paragraph (c)(1) of this section if:
    (1) The bank holding company acquired the insured depository 
institution during the 12-month period preceding the filing of an 
election under paragraph (a) of this section;
    (2) The bank holding company has submitted an affirmative plan to 
the appropriate Federal banking agency for the institution to take 
actions necessary for the institution to achieve at least a rating of 
``satisfactory record of meeting community credit needs'' under the 
Community Reinvestment Act at the next examination of the institution; 
and
    (3) The appropriate Federal banking agency for the institution has 
accepted that plan.
    (f) When is an election effective? (1) In general. An election 
described in paragraph (a) of this section is effective on the 31st day 
after the date that the election was received by the appropriate 
Federal Reserve Bank, unless the Board notifies the bank holding 
company prior to that time that the election is ineffective.
    (2) Earlier notification that an election is effective. The Board 
or the appropriate Federal Reserve Bank may notify a bank holding 
company that its election to become a financial holding company is 
effective prior to the 31st day after the election was filed with the 
appropriate Federal Reserve Bank. Such a notification must be in 
writing.


Sec. 225.83  What are the consequences of failing to continue to meet 
applicable capital and management requirements?

    (a) Notice by the Board. If the Board finds that any depository 
institution controlled by a financial holding company ceases to be well 
capitalized or well managed, the Board will notify the company in 
writing that it is not in compliance with the applicable requirement(s) 
for a financial holding company and identify the areas of 
noncompliance.
    (b) Notification by a financial holding company required. Promptly 
upon becoming aware that any depository institution controlled by the 
financial holding company has ceased to be well capitalized or well 
managed, the company must notify the Board and identify the depository 
institution involved and the area of noncompliance.
    (c) Execution of agreement acceptable to the Board--(1) Agreement 
required; time period. Within 45 days after receiving a notice under 
paragraph (a) of this section, the company must execute an agreement 
acceptable to the Board to comply with all applicable capital and 
management requirements.
    (2) Extension of time for executing agreement. Upon request by a 
company, the Board may extend the 45-day period under paragraph (c)(1) 
of this section if the Board determines that granting additional time 
is appropriate under the circumstances. A request by a company for 
additional time must include an explanation of why an extension is 
necessary.
    (3) Agreement requirements. An agreement required by paragraph 
(c)(1) of this section to correct a capital or management deficiency 
must:
    (i) Explain the specific actions that the company will take to 
correct all areas of noncompliance;
    (ii) Provide a schedule within which each action will be taken;
    (iii) Provide any other information that the Board may require; and
    (iv) Be acceptable to the Board.
    (d) Limitations during period of noncompliance. Until the Board 
determines that a company has corrected the conditions described in a 
notice under paragraph (a) of this section:
    (1) The Board may impose any limitations or conditions on the 
conduct or activities of the company or any of its affiliates as the 
Board finds to be appropriate and consistent with the purposes of the 
Bank Holding Company Act; and
    (2) The company and its affiliates may not engage in any additional 
activity or acquire control or shares of any company under section 4(k) 
of the Bank Holding Company Act without prior approval from the Board.
    (e) Consequences of failure to correct conditions within 180 days--
(1) Divestiture of depository institutions. If a company does not 
correct the conditions described in a notice under paragraph (a) of 
this section within 180 days of receipt of the notice or such 
additional time as the Board may permit, the Board may order the 
company to divest ownership or control of any depository institution 
owned or controlled by the company. Such divestiture must be done in 
accordance with the terms and conditions established by the Board.
    (2) Alternative method of complying with a divestiture order. A 
company may comply with an order issued under paragraph (e)(1) of this 
section by ceasing to engage (both directly and through any subsidiary 
that is not a depository institution or a subsidiary of a depository 
institution) in all activities that are not permissible for a bank 
holding company to conduct under section 4(c)(8) of the Bank Holding 
Company Act. The termination of activities must be done within the time 
period referred to in paragraph (e)(1) of this section and subject to 
terms and conditions acceptable to the Board.
    (f) Consultation with other agencies. In taking any action under 
this section, the Board will consult with the relevant Federal and 
state regulatory authorities.


Sec. 225.84  What are the consequences of failing to maintain a 
satisfactory or better rating under the Community Reinvestment Act at 
all insured depository institution subsidiaries?

    (a) Limitations on activities--(1) In general. Upon receiving a 
notice regarding performance under the Community Reinvestment Act in 
accordance with paragraph (a)(2) of this section, a financial holding 
company may not:
    (i) Commence any additional activity under subsection 4(k) or 4(n) 
of the Bank Holding Company Act; or
    (ii) Directly or indirectly acquire control of a company engaged in 
any activity under subsections 4(k) or 4(n) of the Bank Holding Company 
Act.
    (2) Notification. A financial holding company receives notice for 
purposes of this paragraph at the time that the appropriate Federal 
banking agency for any insured depository institution controlled by the 
company or the Board

[[Page 3793]]

provides notice to the institution or company that the institution has 
received a rating of ``needs to improve record of meeting community 
credit needs'' or ``substantial noncompliance in meeting community 
credit needs'' in the institution's most recent examination under the 
Community Reinvestment Act.
    (b) Exception for certain activities--(1) Continuation of 
investment activities. The prohibition in paragraph (a) of this section 
does not prevent a financial holding company from continuing to make 
investments in the ordinary course of conducting investment activities 
under section 4(k)(4)(H) or insurance company investment activities 
under section 4(k)(4)(I) of the Bank Holding Company Act if:
    (i) The financial holding company lawfully was a financial holding 
company and commenced the investment activity under section 4(k)(4)(H) 
or the insurance company investment activities under section 4(k)(4)(I) 
prior to the time that an insured depository institution controlled by 
the financial holding company received a rating below ``satisfactory 
record of meeting community credit needs'' under the Community 
Reinvestment Act; and (ii) The Board has not, in the exercise of its 
supervisory authority, advised the financial holding company that these 
activities must be restricted.
    (2) Activities that are closely related to banking. The prohibition 
in paragraph (a) of this section does not prevent a financial holding 
company from commencing any additional activity or acquiring control of 
a company engaged in any activity under section 4(c) of the Bank 
Holding Company Act, if the company complies with the notice, approval, 
and other requirements under that section and section 4(j).
    (c) Duration of prohibitions. The prohibitions described in 
paragraph (a) of this section shall continue in effect until such time 
as each insured depository institution controlled by the financial 
holding company has achieved at least a rating of ``satisfactory record 
of meeting community credit needs'' under the Community Reinvestment 
Act at the most recent examination of the institution.


Sec. 225.90  What are the requirements for a foreign bank to be treated 
as a financial holding company?

    (a) Foreign banks as financial holding companies. A foreign bank 
that operates a branch or agency or owns or controls a commercial 
lending company in the United States, and any company that owns or 
controls such a foreign bank, will be treated as a financial holding 
company if:
    (1) The foreign bank is and remains well capitalized and well 
managed; and (2) The foreign bank, or the company that owns the foreign 
bank, has made an effective election to be treated as a financial 
holding company under this subpart.
    (b) Standards for ``well capitalized.'' A foreign bank will be 
considered ``well capitalized'' if either:
    (1)(i) Its home country supervisor, as defined in Sec. 211.21 of 
the Board's Regulation K (12 CFR 211.21), has adopted risk-based 
capital standards consistent with the Capital Accord of the Basel 
Committee on Banking Supervision (Basel Accord);
    (ii) The foreign bank maintains a Tier 1 capital to total risk-
based assets ratio of 6 percent and a total capital to total risk-based 
assets ratio of 10 percent, as calculated under its home country 
standard;
    (iii) The foreign bank maintains a Tier 1 capital to total assets 
leverage ratio of at least 3 percent; and
    (iv) The Board determines that the foreign bank's capital is 
comparable to the capital required for a U.S. bank owned by a financial 
holding company; or
    (2) The foreign bank has obtained a determination from the Board 
under Sec. 225.91(c) that the foreign bank's capital is otherwise 
comparable to the capital that would be required of a U.S. bank owned 
by a financial holding company.
    (c) Standards for ``well managed.'' A foreign bank will be 
considered ``well managed'' if:
    (1) Each of the U.S. branches, agencies, and commercial lending 
subsidiaries of the foreign bank has received at least a satisfactory 
composite rating at its most recent assessment;
    (2) The home country supervisor of the foreign bank considers the 
overall operations of the foreign bank to be satisfactory or better; 
and
    (3) The Board determines that the management of the foreign bank 
meets standards comparable to those required of a U.S. bank owned by a 
financial holding company.


Sec. 225.91  How may a foreign bank elect to be treated as a financial 
holding company?

    (a) Filing requirement. A foreign bank that operates a branch or 
agency or owns or controls a commercial lending company in the United 
States, or a company that owns or controls such a foreign bank, may 
elect to be treated as a financial holding company by filing a written 
declaration with the appropriate Reserve Bank.
    (b) Contents of declaration. The declaration must:
    (1) State that the foreign bank or the company elects to be treated 
as a financial holding company;
    (2) Provide the risk-based and leverage capital ratios of the 
foreign bank as of the close of the most recent quarter and as of the 
close of the most recent audited reporting period;
    (3) Certify that the foreign bank meets the standards of well 
capitalized set out in Sec. 225.90(b)(1)(i),(ii) and (iii) or 
Sec. 225.90(b)(2) as of the date the foreign bank or company files its 
election; and
    (4) Certify that the foreign bank is well managed as defined in 
Sec. 225.90(c)(1) and (2) as of the date the foreign bank or company 
files its election.
    (c) Pre-clearance process. Before filing an election to be treated 
as a financial holding company, a foreign bank or company may file a 
request for review of its qualifications to be treated as a financial 
holding company. The Board will endeavor to make a determination on 
such requests within 30 days of receipt.


Sec. 225.92  How does an election by a foreign bank become effective?

    (a) In general. An election filed by a foreign bank or company 
under Sec. 225.91 will not be effective unless the Board determines 
that--
    (1) The foreign bank is well capitalized and well managed; and
    (2) In the case of a foreign bank that operates a branch in the 
United States that is insured by the Federal Deposit Insurance 
Corporation, the branch has received at its most recent examination a 
rating of ``satisfactory record of meeting community credit needs'' or 
better under the Community Reinvestment Act.
    (b) Factors used in the Board's determination regarding 
comparability of capital and management. In determining whether a 
foreign bank is well capitalized and well managed in accordance with 
comparable capital and management standards, the Board will give due 
regard to national treatment and equality of competitive opportunity. 
In this regard, the Board may take into account the foreign bank's 
composition of capital, accounting standards, long-term debt ratings, 
reliance on government support to meet capital requirements, the extent 
to which the foreign bank is subject to comprehensive consolidated 
supervision, and other factors that may affect analysis of capital and 
management. The Board will consult

[[Page 3794]]

with the home country supervisor for the foreign bank as appropriate.
    (c) Timing. The Board will notify a foreign bank or company of its 
determination under this section within 30 days of the filing of the 
election unless the Board determines that it does not have sufficient 
information on which to base a finding.


Sec. 225.93  What are the consequences of a foreign bank failing to 
continue to meet applicable capital and management requirements?

    (a) Notice by the Board. If a foreign bank or company has made an 
effective election to be treated as a financial holding company under 
this subpart and the Board finds that the foreign bank ceases to be 
well capitalized or well managed, the Board will notify the foreign 
bank or company in writing that it is not in compliance with the 
applicable requirement(s) for a financial holding company and identify 
the areas of noncompliance.
    (b) Notification by a financial holding company required. Promptly 
upon becoming aware that it has ceased to be well capitalized or well 
managed, the foreign bank, or any company that controls such foreign 
bank, must notify the Board and identify the area of noncompliance.
    (c) Execution of agreement acceptable to the Board-- (1) Agreement 
required; time period. Within 45 days after receiving a notice under 
paragraph (a) of this section, the foreign bank or company must execute 
an agreement acceptable to the Board to comply with all applicable 
capital and management requirements.
    (2) Extension of time for executing agreement. Upon request by a 
company, the Board may extend the 45-day period under paragraph (c)(1) 
of this section if the Board determines that granting additional time 
is appropriate under the circumstances. A request by a company for 
additional time must include an explanation of why an extension is 
necessary.
    (3) Agreement requirements. An agreement required by paragraph 
(c)(1) of this section to correct a capital or management deficiency 
must:
    (i) Explain the specific actions that the foreign bank or company 
will take to correct all areas of noncompliance;
    (ii) Provide a schedule within which each action will be taken;
    (iii) Provide any other information that the Board may require; and
    (iv) Be acceptable to the Board.
    (d) Limitations during period of noncompliance. Until the Board 
determines that a company has corrected the conditions described in a 
notice under paragraph (a) of this section:
    (1) The Board may impose any limitations or conditions on the 
conduct or the U.S. activities of the foreign bank or company or any of 
its affiliates as the Board finds to be appropriate and consistent with 
the purposes of the Bank Holding Company Act; and
    (2) The company and its affiliates may not engage in any new 
activity in the United States or acquire control or shares of any 
company under section 4(k) of the Bank Holding Company Act without 
prior approval from the Board.
    (e) Consequences of failure to correct conditions within 180 days--
(1) Termination of offices and divestiture. If a foreign bank or 
company does not correct the conditions described in a notice under 
paragraph (a) of this section within 180 days of receipt of the notice 
or such additional time as the Board may permit, the Board may order 
the foreign bank or company to terminate the foreign bank's U.S. 
branches and agencies and divest any commercial lending companies owned 
or controlled by the foreign bank or company. Such divestiture must be 
done in accordance with the terms and conditions established by the 
Board.
    (2) Alternative method of complying with a divestiture order. A 
foreign bank or company may comply with an order issued under paragraph 
(e)(1) of this section by ceasing to engage (both directly and through 
any subsidiary) in all activities that are not permissible for a 
foreign bank to conduct under sections 2(h) and 4(c) of the Bank 
Holding Company Act. The termination of activities must be done within 
the time period referred to in paragraph (e)(1) of this section and 
subject to terms and conditions acceptable to the Board.
    (f) Consultation with other agencies. In taking any action under 
this section, the Board will consult with the relevant Federal and 
state regulatory authorities.


Sec. 225.94  What are the consequences of an insured branch failing to 
maintain a satisfactory or better rating under the Community 
Reinvestment Act?

    (a) Insured branch as an ``insured depository institution.'' A U.S. 
branch of a foreign bank that is insured by the Federal Deposit 
Insurance Corporation shall be treated as an ``insured depository 
institution'' for purposes of Sec. 225.84.
    (b) Applicability. The provisions of Sec. 225.84, with the 
modifications contained in this section, shall apply to a foreign bank 
that operates an insured branch referred to in paragraph (a) of this 
section, and any company that owns or controls such a foreign bank, 
that has made an effective election under Sec. 225.92 in the same 
manner and to the same extent as they apply to a financial holding 
company.

    By order of the Board of Governors of the Federal Reserve 
System, January 18, 2000.
Jennifer J. Johnson,
Secretary of the Board.
[FR Doc. 00-1646 Filed 1-24-00; 8:45 am]
BILLING CODE 6210-01-P