[Federal Register Volume 65, Number 53 (Friday, March 17, 2000)]
[Rules and Regulations]
[Pages 14433-14440]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-6469]


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FEDERAL RESERVE SYSTEM

12 CFR Part 225

[Regulation Y; Docket No. R-1062]


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 
amending its Regulation Y on an interim basis effective March 11, 2000, 
to include a list of the financial activities permissible for a 
financial holding company under the Gramm-Leach-Bliley Act. The Board 
also is adopting procedures a financial holding company must follow in 
order to engage in listed financial activities, as well as activities 
that are complementary to a financial activity. In addition, the Board 
is adopting procedures by which a financial holding company or any 
other interested party may make requests that the Board determine that 
activities not listed in the Gramm-Leach-Bliley Act are permissible for 
a financial holding company. The Board is promulgating this rule on an 
interim basis in order to make a list of permissible activities and the 
applicable notification procedures for engaging in those activities 
available to financial holding companies on the effective date of the 
financial holding company provisions of the Gramm-Leach-Bliley Act.
    The interim rule adds five sections to Subpart I of Regulation Y. 
The first two sections list the financial activities in which the 
Gramm-Leach-Bliley Act permits a financial holding company to engage 
and explain that Board approval generally is not required to engage in 
those activities. The third section explains the post-commencement 
notice procedures applicable to listed activities. The fourth section 
establishes a procedure by which any interested party may request that 
the Board find an activity that is not listed in the Gramm-Leach-Bliley 
Act or the rule to be financial in nature or incidental to a financial 
activity. The fifth section establishes a procedure by which a 
financial holding company may seek a Board determination that a 
particular activity is complementary to a financial activity and 
receive approval to engage in that activity.
    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 May 12, 2000.

ADDRESSES: Comments should refer to docket number R-1062 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 or mailed electronically to 
[email protected]. 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 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 a.m. and 5 p.m. on weekdays.

FOR FURTHER INFORMATION CONTACT: Scott G. Alvarez, Associate General 
Counsel (202/452-3583) or Adrianne G. Threatt, Attorney (202/452-3554); 
Legal Division; Board of Governors of the Federal Reserve System, 20th 
Street and Constitution Avenue, N.W., Washington, D.C., 20551. For 
users of Telecommunications Device for the Deaf (``TDD''), contact 
Janice Simms at 202/452-4984.

[[Page 14434]]


SUPPLEMENTARY INFORMATION:  

Background

    The Gramm-Leach-Bliley Act (Pub. L. No. 106-102, 113 Stat. 1338 
(1999)) (the ``GLB Act'') authorizes affiliations among banks, 
securities firms, insurance firms, and other financial companies. The 
GLB Act amends the Bank Holding Company Act (``BHC Act'') (12 U.S.C. 
1841 et seq.) to allow a bank holding company or foreign bank that 
qualifies as a financial holding company to engage in a broad range of 
activities that are defined by the GLB Act to be financial in nature or 
incidental to a financial activity, or that the Board, in consultation 
with the Secretary of the Treasury, determines to be financial in 
nature or incidental to a financial activity. The GLB Act also allows a 
financial holding company to seek Board approval to engage in any 
activity that the Board determines both to be complementary to a 
financial activity and not to pose a substantial risk to the safety and 
soundness of depository institutions or the financial system generally. 
Bank holding companies that do not qualify as financial holding 
companies are limited to engaging in those nonbanking activities that 
were permissible for bank holding companies prior to the enactment of 
the GLB Act.
    The GLB Act provides that, in most cases, a financial holding 
company may engage or acquire the shares of a company that is engaged 
in financial activities without obtaining prior approval from the 
Board. A financial holding company is required instead to provide a 
post-commencement notice to the Board within 30 days after commencing a 
financial activity or acquiring a company under the new section 4(k).
    As noted above, the GLB Act allows the expansion by the Board in 
consultation with the Secretary of the Treasury of the list of 
financial activities that are permissible for financial holding 
companies. Any interested party may request that the Board determine 
that an activity not listed in the GLB Act is financial in nature or 
incidental to a financial activity. In making its determination, the 
Board must consult with the Secretary of the Treasury and must take 
into account four factors: (1) The purposes of the GLB and BHC Acts; 
(2) the changes or reasonably expected changes in the marketplace in 
which financial holding companies compete; (3) the changes or 
reasonably expected changes in technology for delivering financial 
services; and (4) whether the proposed activity is necessary or 
appropriate to allow a financial holding company to compete effectively 
with companies seeking to provide financial services in the United 
States, efficiently deliver financial information and services through 
technological means, and offer customers any available or emerging 
technological means for using financial services or for the document 
imaging of data. The Secretary of the Treasury also may at any time 
recommend that the Board find an activity to be financial in nature or 
incidental to a financial activity.
    In addition to permitting a financial holding company to engage in 
activities that are financial in nature or incidental to a financial 
activity, the GLB Act provides that a financial holding company may 
engage in activities that the Board determines are complementary to 
existing financial activities and do not pose a substantial risk to the 
safety or soundness of depository institutions or the financial system 
generally. The Act requires that a financial holding company receive 
approval under section 4(j) of the BHC Act prior to conducting or 
acquiring a company engaged in an activity that the company believes to 
be complementary to a financial activity.

Interim Rule

    In order to implement the provisions of the GLB Act governing the 
activities in which financial holding companies may engage, the Board 
is amending Regulation Y by adding sections that (1) list the 
activities in which a financial holding company may engage; (2) set 
forth the procedures for engaging in the listed activities; (3) 
establish procedures for requesting that an additional activity be 
deemed to be financial in nature or incidental to a financial activity; 
and (4) establish procedures by which a financial holding company may 
request that the Board determine that an activity is complementary to a 
financial activity and receive Board approval to conduct a 
complementary activity.

Section-by-Section Analysis

Section 225.85--Is Notice To or Approval From the Board Required Prior 
To Engaging in a Financial Activity?

    Subsection (a)(1) provides that, in most cases, a financial holding 
company may, without providing prior notice to or obtaining prior 
approval from the Board, conduct an activity that is financial in 
nature or incidental to a financial activity (a ``financial 
activity''). A financial holding company may conduct a financial 
activity by engaging directly in the activity or by acquiring and 
retaining the shares of any company that is engaged exclusively in one 
or more financial activities. A financial holding company may conduct a 
financial activity at any location inside or outside of the United 
States, subject to the laws of the jurisdiction in which the activity 
is conducted.
    Subsection (a)(2) and (3) provide that a financial holding company 
may control or acquire more than 5 percent of the voting shares of a 
company that is not engaged exclusively in financial activities that 
are permissible for a financial holding company. Under paragraph (2), a 
financial holding company may acquire control or shares of a company 
that, in addition to financial activities, engages in other activities 
permissible for the acquiring financial holding company. In this case, 
the financial holding company must comply with any approval, notice or 
other requirement that governs the other activities. Paragraph (3) 
would allow acquisitions of a company with some impermissible 
activities, in keeping with the Board's prior practice regarding bank 
holding company acquisitions of companies that were not engaged 
exclusively in activities that were permissible for bank holding 
companies.
    The acquisition of a company with limited impermissible activities 
must meet three requirements. First, the acquired company must be 
engaged substantially in financial activities and other activities 
permissible for the financial holding company. A financial holding 
company that is uncertain about whether a proposed acquisition meets 
this standard should consult with the Board. Second, in the post-
commencement notice provided by the financial holding company to the 
Board regarding the acquisition, the financial holding company must 
commit to terminate or divest the impermissible activities, and the 
company must complete the divestiture or termination within two years 
of the acquisition. Finally, after being acquired by a financial 
holding company, the company engaged in impermissible activities may 
not engage in or acquire a company engaged in any activity that is not 
permissible for the financial holding company.
    Subsection (c) identifies two circumstances under which Board 
approval still is required to engage in financial activities. First, 
prior approval in accordance with section 4(j) of the BHC Act and 
Sec. 225.24 of Regulation Y is required to acquire more than 5 percent 
of the shares or control of a savings association.\1\ In addition, the

[[Page 14435]]

Board may, in the exercise of its supervisory authority, require a 
financial holding company to provide prior notice to or obtain prior 
approval from the Board if circumstances warrant.
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    \1\ The GLB Act did not change in any way the requirement that a 
company receive prior approval of the Board under section 3 of the 
BHC Act before acquiring shares or control of a bank.
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Section 225.86--What Activities Are Permissible for Financial Holding 
Companies?

    This section consolidates in one place a description of all 
activities that the GLB Act defines as financial in nature. Subsection 
(a) states that financial holding companies may engage in any activity 
that the Board had found to be closely related to banking under section 
4(c)(8) of the BHC Act by a regulation or order that is in effect on 
November 12, 1999. Subsection (a)(1) provides a cross reference to 
Sec. 225.28, which contains a list of the relevant activities approved 
by regulation. Subsection (a)(2) lists activities that have been found 
by Board order in effect on November 12, 1999, to be closely related to 
banking but that are not otherwise included in the statutory list of 
permissible financial activities. For example, section 20 activities 
are not included in the list of activities approved by order because 
securities underwriting, dealing, and market making now is authorized 
for financial holding companies in a broader form at section 4(k)(4)(E) 
of the BHC Act. The Board specifically requests comment on whether 
there are other activities approved only by Board order that should be 
listed in Sec. 225.86(a)(2), and whether the scope of any listed 
activity should be clarified.
    All activities in which a financial holding company engages 
pursuant to subsection (a) must be conducted subject to the terms and 
conditions contained in Regulation Y and in the Board orders 
authorizing the activities. Bank holding companies that are not 
financial holding companies may continue to seek approval to engage in 
any activity that the Board determined by regulation or order in effect 
on November 12, 1999, to be closely related to banking. These bank 
holding companies must continue to use the prior notice and approval 
procedures listed at Secs. 225.22 to 225.24.
    Section 4(k)(4)(G) of the BHC Act defines as financial in nature 
any activity in which a bank holding company may engage outside the 
United States and that the Board has determined in regulations 
prescribed or interpretations issued under section (4)(c)(13) of the 
BHC Act that are in effect on November 11, 1999, to be usual in 
connection with the transaction of banking or other financial services 
abroad. Section 225.86(b) lists the three activities that have been 
found by the Board to be usual in connection with the transaction of 
banking or other financial operations abroad as listed in Regulation K 
(see 12 CFR 211.5(d)) that are not otherwise permissible for a bank 
holding company under the Board's Regulation Y or included on the 
statutory list of financial activities. These activities are management 
consulting services, operating a travel agency, and organizing, 
sponsoring, or managing a mutual fund.
    In each case, the rule describes certain limitations that apply to 
the conduct of the activity. In the case of management consulting 
services, the services may be provided to any person on nonfinancial 
matters. However, the services must be advisory and not allow the 
financial holding company to control the person to whom the services 
are provided.
    A financial holding company may also operate a travel agency in 
connection with financial services offered by the holding company or by 
others. Finally, a fund organized, sponsored or managed by a financial 
holding company may not exercise managerial control over the companies 
in which the fund invests and the financial holding company must reduce 
its ownership of the fund, if any, to less than 25 percent of the 
equity of the fund within one year of sponsoring the fund (or such 
additional period as the Board permits).
    The remainder of the activities listed at Sec. 211.5(d) have been 
either (1) authorized for financial holding companies in a broader form 
by the GLB Act (e.g., underwriting, distributing, and dealing in 
securities and underwriting various types of insurance); or (2) 
authorized in the same or a broader form in Regulation Y (e.g., data 
processing activities, real and personal property leasing, and acting 
as agent, broker, or adviser in leasing property). The Board notes that 
section 4(k)(4)(G) of the Act and this interim rule only authorize 
financial holding companies to engage in the activities that are listed 
in Sec. 211.5(d) of Regulation K as interpreted by the Board, not in 
activities that the Board has approved in individual orders under 
section 4(c)(13).
    Subsection (c) incorporates by reference the remaining activities 
authorized by section 4(k)(4) of the BHC Act. Those activities include 
activities that previously have not been permissible for bank holding 
companies, such as acting as principal, agent, or broker for purposes 
of insuring, guaranteeing, or indemnifying against loss, harm, damage, 
illness, disability, or death, and issuing annuity products. 
Permissible insurance activities as principal include reinsuring 
insurance products. A financial holding company acting under that 
section may conduct insurance activities without regard to the 
restrictions on the insurance activities imposed on bank holding 
companies under section 4(c)(8).
    The GLB Act also authorizes underwriting, dealing in, and making a 
market in securities without regard to whether such securities may be 
sold by a bank. This activity includes underwriting or distributing 
shares of open-end investment companies commonly referred to as mutual 
funds.
    Securities underwriting activities conducted under section 
4(k)(4)(E) rather than section 4(c)(8) may be conducted without regard 
to the 25 percent revenue limitation that is applicable to section 20 
subsidiaries of bank holding companies that engage in securities 
underwriting and dealing under section 4(c)(8). In addition, dealing 
may be done without regard to the 5 percent limitation on ownership of 
voting securities.
    In a separate proposal, the Board has determined that the operating 
standards applicable to section 20 companies do not apply to financial 
holding companies that engage in securities underwriting, dealing, and 
market making under section 4(k)(4)(E) of the BHC Act with two 
exceptions. First, intra-day extensions of credit to a securities firm 
from an affiliated bank or thrift or U.S. branch or agency of a foreign 
bank must be on market terms consistent with section 23B of the Federal 
Reserve Act (``FRA''). Second, the limitations of sections 23A and 23B 
of the FRA apply to covered transactions between a U.S. branch or 
agency of a foreign bank and a U.S. securities affiliate. The operating 
standards and revenue limit continue to apply to bank holding companies 
that are not financial holding companies, and to financial holding 
companies that continue to conduct securities activities pursuant to 
section 4(c)(8) of the BHC Act.
    In cases where a financial holding company already has approval 
under section 4(c)(8) to engage in an activity now available in an 
expanded scope under section 4(k), the company must provide the Board 
with a post-commencement notice as described in Sec. 225.87 informing 
the Board that the company has expanded the scope of the activity in 
accordance with section 4(k). Unless otherwise notified by the Board,

[[Page 14436]]

the financial holding company may then conduct the activity subject to 
the limitations set forth in section 4(k)(4)(A) through (E), 
Sec. 225.86 and other applicable laws governing the activity.
    Any financial holding company that feels it needs specific relief 
from a commitment or condition to conduct an activity in accordance 
with section 4(k)(4) may request in writing a determination that the 
condition or commitment is no longer appropriate. The Board 
specifically seeks comment on the types of commitments and conditions 
the Board has imposed on financial holding companies under section 
4(c)(8) that may hinder their ability to conduct expanded activities 
under section 4(k)(4).
    The Board reminds financial holding companies that commitments and 
conditions that relate to activities for which the GLB Act has not 
provided any additional authority, such as data processing, remain in 
effect. Moreover, the Board notes that this action does not relieve any 
financial holding company of its obligation to conduct each activity in 
accordance with relevant state and federal law governing the activity.
    Should a company that has notified the Board that the company has 
expanded a section 4(c)(8) activity consistent with section 4(k)(4) 
choose at a later date to conduct the activity under section 4(c)(8), 
the company should consult with Board staff to determine the conditions 
under which the activity should be conducted.
    The GLB Act also allows a financial holding company to engage in 
merchant banking activities. This activity involves directly or 
indirectly acquiring shares, assets, or ownership interests of a 
company engaged in an activity that is impermissible for a financial 
holding company, whether or not that interest constitutes control of 
the company. The Board and the Secretary of the Treasury have 
separately proposed interim rules regarding the conduct of this 
activity that are separate from this rule.
    The GLB Act requires the Board to define the extent to which three 
activities listed in section 4(k)(5) of the BHC Act are financial in 
nature or incidental to a financial activity. The Board expects to 
initiate a rulemaking to provide further guidance concerning the 
4(k)(5) activities in the near future.
    An activity that is not described in the list of activities and 
references in this section is not a financial activity unless the 
Board, in consultation with the Treasury, determines that the activity 
is financial in nature or incidental to a financial activity. The 
procedures for obtaining a Board determination are described in detail 
in the analysis of Sec. 225.88 below. That section also contains a 
procedure by which a financial holding company that is uncertain about 
the scope of an authorized activity may request an advisory opinion 
from the Board.

Section 225.87--Is Notice to the Board Required After Engaging in a 
Financial Activity?

    Section 4(k)(6)(A) of the BHC Act generally provides that a 
financial holding company may engage in financial activities or acquire 
companies engaged in financial activities pursuant to section (4)(k)(4) 
by providing the Board with a written notice that describes the 
activity commenced or the name of and activity conducted by the 
acquired company, as appropriate, within 30 days of commencing the 
activity or consummating the acquisition.
    Section 225.87 implements the post-commencement notice procedure 
for applicable activities commenced pursuant to section 4(k)(4). As a 
general matter, Sec. 225.87(a) states that financial holding companies 
engaging in activities and making acquisitions listed in Sec. 225.86 
need only provide a simple written notice to the appropriate Federal 
Reserve Bank within 30 days after commencing the activity or making the 
acquisition. The notice must describe the activity commenced and the 
subsidiaries engaged in the activity, or identify the company acquired 
and describe the activities such company conducts, as relevant.
    Subsection (b) describes two circumstances in which no notice to 
the Board is required in order to engage in an activity. First, no 
notice to the Board is required when a financial holding company 
acquires shares of a company without acquiring control of the company. 
The second exception applies to a financial holding company that is 
engaged in securities activities under 4(k)(4)(E), that makes merchant 
banking investments under 4(k)(4)(H), or that makes insurance company 
investments under 4(k)(4)(I) and has provided the System with the 
appropriate notice regarding the relevant activity. Under those 
circumstances, the company need only submit a notice in connection with 
the acquisition of the shares of any company as part of the securities, 
merchant banking or insurance investment activity if the cost of the 
acquisition exceeds the lesser of 5 percent of the financial holding 
company's Tier 1 capital or $200 million.

Section 225.88--How To Request the Board To Determine That an Activity 
Is Financial in Nature or Incidental to a Financial Activity?

    The GLB Act provides that the Board may determine that activities 
are financial in nature or incidental to financial activities after 
consulting with the Secretary of the Treasury. Subsection (a) provides 
that requests for a determination that a new activity is a financial 
activity may be made by a financial holding company or by any other 
interested party.
    A request for a determination that an activity is financial in 
nature or incidental to a financial activity must identify and define 
the activity for which the determination is sought. The request must 
also provide specific information about what the activity would involve 
and how it would be conducted, and explain in detail why the activity 
should be considered financial in nature or incidental to a financial 
activity. Importantly, the request must provide information that is 
sufficient to support a Board finding that the activity is financial. 
The request also must provide any additional information required by 
the Board.
    On receiving a request, the Board will provide the Secretary of the 
Treasury with a copy of the proposal and consult with the Secretary in 
accordance with section 4(k)(2) of the BHC Act. The Board also may 
request public comment on the proposal. The Board will endeavor to act 
on all requests for a determination within 60 days of completion of the 
consultative process and the close of the public comment period, if 
applicable. The Board's initial determination regarding a particular 
activity will clarify whether a financial holding company that 
subsequently seeks to engage in the activity may do so using the post-
commencement notice procedure of Sec. 225.87, or whether a different 
notification or approval requirement applies.
    Section 225.88(e) establishes a procedure by which financial 
holding companies may request from the Board an advisory opinion 
concerning whether a specific proposed activity falls within the scope 
of an activity that is permissible for a financial holding company. 
Such requests must be in writing and must provide detailed information 
about the proposed activity, including an explanation that supports a 
finding that the activity is within the scope of a permissible 
activity. The Board will provide an advisory opinion to the requester 
within 45 days of receiving a complete written request.

[[Page 14437]]

Section 225.89--How To Request Approval To Engage in an Activity That 
Is Complementary to a Financial Activity?

    The GLB Act provides that a financial holding company may engage in 
an activity that the Board determines to be complementary to a 
financial activity. The legislative history of the GLB Act suggests 
that complementary activities are activities that are closely 
associated with a financial activity or that are normally conducted 
with or flow from a financial activity. However, the GLB Act itself 
does not define what qualifies as a complementary activity. The Board 
therefore requests comment on the definition of the term of 
``complementary activity.''
    The GLB Act provides that a financial holding company must obtain 
prior Board approval in accordance with section 4(j) of the BHC Act to 
engage in or acquire a company engaged in any activity that the 
financial holding company believes to be complementary to a financial 
activity. In addition to applying the standards under section 4(j), the 
Board must determine that the activity is complementary to a financial 
activity and would not pose a substantial risk to the safety or 
soundness of depository institutions or the financial system generally.
    Section 225.87(b) implements this requirement by requiring that a 
request for prior approval to engage in a complementary activity 
provide a detailed description of the proposed complementary activity 
(including the projected scope and relative size of the activity), 
identify the particular financial activity for which the proposed 
activity would be complementary, and provide a detailed explanation for 
why the proposed activity should be considered complementary to a 
financial activity. The request also must discuss the impact of the 
proposed activity on the safety and soundness of depository 
institutions controlled by the financial holding company and on the 
financial system generally. In addition, the request must describe the 
potential adverse effects that conducting the activity could raise and 
explain measures the financial holding company intends to take to 
address those concerns. Requests regarding complementary activities 
also must include any financial, managerial, and other information 
required by the Board. The Board will act on requests to engage in 
complementary activities within the time period described in section 
4(j) of the BHC Act.
    The Board invites comment on all aspects of the interim rule, and 
particularly on the items specifically identified in the foregoing 
discussion.

Section 225.24--Procedures for Other Nonbanking Proposals

    The Board has deleted the existing text of subsection (a)(3), which 
discusses the information requirements for proposals to engage in 
activities that are not listed in Sec. 225.28. The GLB Act amends 
section 4(c)(8) to remove the Board's authority to authorize additional 
nonbanking activities for bank holding companies under that section. 
Therefore, subsection (a)(3) is unnecessary and has been deleted.

Regulatory Flexibility Act

    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 
the provisions of Title I of the GLB Act that allow financial holding 
companies to engage in a broad range of financial activities by using a 
streamlined notification procedure. In most cases, the company need 
only provide the Board a brief written notice that identifies the 
activity commenced and the subsidiary that conducts the activity within 
30 days of commencing an activity.
    In addition, the rule establishes procedures by which a party can 
request that the Board determine additional activities are financial in 
nature or incidental to a financial activity and procedures by which a 
financial holding company can seek approval to engage in an activity it 
proposes to be complementary to a financial activity. These provisions 
are designed to require only the information necessary for the Board to 
evaluate the status of a proposed activity.
    The procedures described in this rule apply only to bank holding 
companies that voluntarily elect to be financial holding companies, and 
those procedures apply to all financial holding companies regardless of 
their size. For financial holding companies that seek to engage in 
activities that previously were permissible under section 4(c)(8) of 
the BHC Act, the procedures described in this rule represent a 
reduction in the amount of paperwork required to engage in such 
activities. In addition, the notification procedures applicable to 
financial holding companies and the procedures for requesting the Board 
to determine that an activity is complementary are specified by the GLB 
Act itself. The Board has attempted in this rule to implement the 
requirements of the statute by requiring from a financial holding 
company only that information that is necessary for the Board to 
discharge its statutory responsibility. The Board specifically requests 
comment on the likely burden this interim rule will impose on financial 
holding companies that seek to engage in financial activities or to 
propose that the Board authorize additional activities as permissible 
for a financial holding company.

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. 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 rule effective on March 11, 2000. Specifically, the rule sets 
forth requirements relating to activities that are permissible for 
financial holding companies as of March 11, 2000, due to statutory 
changes that become effective on that date. The Board is seeking 
comment on the interim rule and will amend the rule as appropriate 
after reviewing all comments it receives.

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.
    The collection of information requirements in this proposed 
rulemaking are found in 12 CFR 225.87, 225.88, and 225.89. This 
information is required to evidence compliance with the requirements of 
Title I of the Gramm-Leach-Bliley Act (Pub. L. 106-103, 113 Stat. 1338 
(1999)) which amends section 4 of the Bank Holding Company Act (12 
U.S.C. 1843). The respondents are financial holding companies.
    The notice cited in 12 CFR 225.87(a) provides that a financial 
holding company that commences an activity or acquires shares of a 
company engaged in an activity listed in Sec. 225.86, must notify the 
appropriate Federal Reserve Bank in writing within 30 calendar days. 
See 12 CFR 225.87(a) for specific details on the content of the notice. 
The Federal Reserve estimates that financial holding companies will 
make 500 filings of this notice annually and that it would take 
approximately 1 hour to complete this notification. This would result 
in an estimated annual burden of

[[Page 14438]]

500 hours. Based on a rate of $20 per hour, the annual cost to the 
public for this information collection would be $10,000.
    Financial holding companies requesting the Board's determination 
that an activity is financial in nature or incidental to a financial 
activity must provide to the Board the information described in 12 CFR 
225.88(b). Financial holding companies may request an advisory opinion 
from the Board about whether a specific proposed activity falls within 
the scope of an activity listed in 12 CFR 225.86 as financial in nature 
or incidental to a financial activity by submitting the information 
described in 12 CFR 225.88(e). Financial holding companies that seek 
prior approval to engage in an activity that the financial holding 
company believes is complementary to a financial activity must provide 
to the Board the information identified in 12 CFR 225.89(a). The 
Federal Reserve estimates that only 25 financial holding companies 
would file the information requested in these sections annually and 
that it would take approximately 1 hour to complete each information 
collection. This would result in estimated annual burden of 25 hours. 
Based on a rate of $20 per hour, the annual cost to the public for this 
information collection would be $500.
    The Board requests comment on the accuracy of these burden 
estimates. These notifications and requests will have no formal 
reporting form and may be submitted in the form of a letter. They will 
be assigned the agency form number FR 4012. The Federal Reserve may not 
conduct or sponsor, and an organization is not required to respond to, 
these information collections unless they display currently valid OMB 
control numbers. The OMB control number for these information 
collections will be 7100-0292.
    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 collections of information 
are 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 
information collections, 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 
collections on respondents, including through the use of automated 
collection techniques or other forms of information technology. 
Comments on the collections 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.

List of Subjects in 12 CFR Part 225

    Administrative practice and procedures, 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 COMPANIES AND CHANGE IN BANK CONTROL 
(REGULATION Y)

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

    Authority: 12 U.S.C. 1817(j)(13), 1818, 1828(o), 1831(i), 1831p-
1, 1843(c)(8), 1843(k), 1844(b), 1972(l), 3106, 3108, 3310, 3331-
3351, 3907, and 3909.
    2. In Sec. 225.24, remove paragraph (a)(3).

    3. In subpart I, add Secs. 225.85 through 225.89 to read as 
follows:


Sec. 225.85  Is notice to or approval from the Board required prior to 
engaging in a financial activity?

    (a) No prior approval required generally--(1) In general. A 
financial holding company and any subsidiary (other than a depository 
institution or subsidiary of a depository institution) of the financial 
holding company may engage in any activity listed in Sec. 225.86, or 
acquire control or shares of a company engaged exclusively in any 
activity listed in Sec. 225.86, without providing prior notice to or 
obtaining prior approval from the Board unless required under paragraph 
(c) of this section.
    (2) May a financial holding company acquire a company engaged in 
other permissible activities? In addition to the activities listed in 
Sec. 225.86, a company acquired or to be acquired by a financial 
holding company under paragraph (a)(1) of this section may engage in 
activities otherwise permissible for a financial holding company under 
this part in accordance with any applicable notice, approval, or other 
requirement.
    (3) May a financial holding company acquire a financial company 
engaged in limited nonfinancial activities? A financial holding company 
may control or acquire more than 5 percent of the voting shares of a 
company that is not engaged exclusively in activities that are 
financial in nature or incidental to a financial activity or otherwise 
permissible for a financial holding company if:
    (i) Substantially all of the activities conducted by the company 
are financial in nature, incidental to a financial activity, or 
otherwise permissible for the financial holding company;
    (ii) As part of the notice provided under Sec. 225.87, the 
financial holding company commits to the Board to terminate or divest 
all activities that are not financial in nature or incidental to a 
financial activity or otherwise permissible for the financial holding 
company and the financial holding company completes that termination or 
divestiture within 2 years of the date the financial holding company 
acquires the company; and
    (iii) Following the acquisition of the company by the financial 
holding company, the company does not engage in or acquire shares of 
any company engaged in any activity that is not permissible for the 
financial holding company.
    (b) In what locations may a financial holding company conduct 
financial activities? A financial holding company may conduct any 
activity listed in Sec. 225.86 at any location in the United States or 
at any location outside of the United States subject to the laws of the 
jurisdiction in which the activity is conducted.
    (c) Under what circumstances is prior notice to the Board required? 
(1) Acquisition of more than 5 percent of the shares of a savings 
association. A financial holding company must obtain Board approval in 
accordance with section 4(j) of the Bank Holding Company Act (12 U.S.C. 
1843(j)) and either Sec. 225.23 or Sec. 225.24, as appropriate, prior 
to acquiring control or more than 5 percent of the voting shares of a 
savings association.
    (2) Supervisory actions. The Board may, if appropriate in 
supervisory cases, including under Sec. 225.82(d) or Sec. 225.83(d) or 
other relevant authority, require a financial holding company to 
provide prior notice to or obtain prior approval from the Board to 
engage in any activity or acquire shares or control of any company.


Sec. 225.86  What activities are permissible for financial holding 
companies?

    The following activities are financial in nature or incidental to a 
financial activity:

[[Page 14439]]

    (a) Activities that were closely related to banking. (1) Any 
activity that the Board had determined by regulation prior to November 
12, 1999, to be so closely related to banking as to be a proper 
incident thereto, subject to the terms and conditions contained in this 
part, unless modified by the Board. These activities are listed in 
Sec. 225.28.
    (2) Any activity that the Board had determined by an order that was 
in effect on November 12, 1999, to be so closely related to banking as 
to be a proper incident thereto, subject to the terms and conditions 
contained in this part and those in the authorizing orders. These 
activities are:
    (i) Providing administrative and other services to mutual funds 
(see, e.g., Societe Generale, 84 Federal Reserve Bulletin 680 (1998));
    (ii) Owning shares of a securities exchange (J.P. Morgan & Co, 
Inc., and UBS AG, 86 Federal Reserve Bulletin 61 (2000));
    (iii) Acting as a certification authority for digital signatures 
(Bayerische Hypo-und Vereinsbank AG, et.al., 86 Federal Reserve 
Bulletin 56 (2000));
    (iv) Providing employment histories to third parties for use in 
making credit decisions and to depository institutions and their 
affiliates for use in the ordinary course of business (Norwest 
Corporation, 81 Federal Reserve Bulletin 732 (1995));
    (v) Check cashing and wire transmission services (Midland Bank, 
PLC, 76 Federal Reserve Bulletin 860 (1990) (check cashing); Norwest 
Corporation, 81 Federal Reserve Bulletin 1130 (1995) (money 
transmission));
    (vi) In connection with offering banking services, providing notary 
public services, selling postage stamps and postage-paid envelopes, 
providing vehicle registration services, and selling public 
transportation tickets and tokens (Popular, Inc., 84 Federal Reserve 
Bulletin 481 (1998)); and
    (vii) Real estate title abstracting (The First National Company, 81 
Federal Reserve Bulletin 805 (1995)).
    (b) Activities that are usual in connection with the transaction of 
banking abroad. Any activity that the Board has determined by 
regulation in effect on November 11, 1999, to be usual in connection 
with the transaction of banking or other financial operations abroad 
(see Sec. 211.5(d) of this chapter), subject to the terms and 
conditions in part 211 and Board interpretations in effect on that date 
regarding the scope and conduct of the activity. In addition to the 
activities listed in paragraphs (a) and (c) of this section, these 
activities are:
    (1) Providing management consulting services, including to any 
person with respect to nonfinancial matters, so long as the management 
consulting services are advisory and do not allow the financial holding 
company to control the person to which the services are provided;
    (2) Operating a travel agency in connection with financial services 
offered by the financial holding company or others; and
    (3) Organizing, sponsoring, and managing a mutual fund, so long as:
    (i) The fund does not exercise managerial control over the entities 
in which the fund invests; and
    (ii) The financial holding company reduces its ownership in the 
fund, if any, to less than 25 percent of the equity of the fund within 
one year of sponsoring the fund or such additional period as the Board 
permits.
    (c) Activities permitted under section 4(k)(4) of the Bank Holding 
Company Act (12 U.S.C. 1843(k)(4)). Any activity defined to be 
financial in nature under sections 4(k)(4)(A) through (E), (H) and (I) 
of the Bank Holding Company Act (12 U.S.C. 1843(k)(4)(A) through (E) 
(H) and (I)).


Sec. 225.87  Is notice to the Board required after engaging in a 
financial activity?

    (a) Post-commencement notice is generally required to engage in a 
financial activity. A financial holding company that commences an 
activity or acquires shares of a company engaged in an activity listed 
in Sec. 225.86 must notify the appropriate Federal Reserve Bank in 
writing within 30 calendar days after commencing the activity or 
consummating the acquisition. The notice must describe, as relevant:
    (1) The activity commenced and the identity of each subsidiary 
engaged in the activity; or
    (2) The identity of the company acquired and the activities 
conducted by the company.
    (b) Are there any cases in which notice to the Board is not 
required?
    (1) Acquisitions that do not result in control of a company. A 
notice under paragraph (a) of this section is not required to acquire 
shares of a company if, following the acquisition, the financial 
holding company does not control the company.
    (2) Conduct of certain investment activities. Except as otherwise 
provided in this part or as determined by the Board in the exercise of 
its supervisory authority, no post-commencement notice is required as 
part of the conduct by a financial holding company or its subsidiary 
of:
    (i) Securities underwriting, dealing, or market making activities 
as described in section 4(k)(4)(E) of the Bank Holding Company Act (12 
U.S.C. 1843(k)(4)(E));
    (ii) Merchant banking activities conducted pursuant to section 
4(k)(4)(H) of the Bank Holding Company Act (12 U.S.C. 1843(k)(4)(H)), 
except as provided in Sec. 225.174(d); or
    (iii) Insurance company investment activities conducted pursuant to 
section 4(k)(4)(I) of the Bank Holding Company Act (12 U.S.C. 
1843(k)(4)(I)), so long as the financial holding company provides the 
notice described in Sec. 225.174(d) in connection with any insurance 
company investment that meets the thresholds in that section.
    (3) Condition for exceptions. The exception provided in paragraph 
(b)(2) of this section applies only if the financial holding company 
previously has provided notice to the Board under paragraph (a) of this 
section that the financial holding company has commenced or acquired 
control of a company engaged in the relevant activity for which an 
exception is claimed.


Sec. 225.88  How to request the Board to determine that an activity is 
financial in nature or incidental to a financial activity?

    (a) Requests regarding activities that may be financial in nature 
or incidental to a financial activity. A financial holding company or 
other interested party may request a determination from the Board that 
an activity not listed in Sec. 225.86 is financial in nature or 
incidental to a financial activity.
    (b) What information must the request contain? A request submitted 
under this section must be in writing and must:
    (1) Identify and define the activity for which the determination is 
sought, specifically describing what the activity would involve and how 
the activity would be conducted;
    (2) Explain in detail why the activity should be considered 
financial in nature or incidental to a financial activity; and
    (3) Provide information supporting the requested determination and 
any other information required by the Board concerning the proposed 
activity.
    (c) What action will the Board take after receiving a request? (1) 
Consultation with the Secretary of the Treasury. Upon receipt of the 
request, the Board will provide the Secretary of the Treasury a copy of 
the request and consult with the Secretary in accordance with section 
4(k)(2)(A) of the Bank Holding Company Act (12 U.S.C. 1843(k)(2)(A)).
    (2) Public notice. The Board may, as appropriate and after 
consultation with the Secretary, publish a description of the proposal 
in the Federal Register with a request for public comment.

[[Page 14440]]

    (d) When will the Board act on a request? The Board will endeavor 
to make a decision on any request filed under paragraph (a) of this 
section within 60 days following the completion of both the 
consultative process described in paragraph (c)(1) of this section and 
the public comment period, if any.
    (e) What should a financial holding company do if it has a question 
about the scope of a financial activity? (1) Written request. A 
financial holding company may request an advisory opinion from the 
Board about whether a specific proposed activity falls within the scope 
of an activity listed in Sec. 225.86 as financial in nature or 
incidental to a financial activity. The request must be submitted in 
writing and must contain:
    (i) A detailed description of the particular activity in which the 
company proposes to engage or the product or service the company 
proposes to provide;
    (ii) An explanation supporting an interpretation regarding the 
scope of the permissible financial activity; and
    (iii) Any additional information requested by the Board regarding 
the activity.
    (2) Board response. The Board will provide an advisory opinion 
within 45 days of receiving a complete written request under paragraph 
(b) of this section.


Sec. 225.89  How to request approval to engage in an activity that is 
complementary to a financial activity?

    (a) Prior Board approval is required. A financial holding company 
that seeks to engage in or acquire a company engaged in an activity 
that the financial holding company believes is complementary to a 
financial activity must obtain prior approval from the Board in 
accordance with section 4(j) of the Bank Holding Company Act (12 U.S.C. 
1843 (j)). The notice must be in writing and must:
    (1) Identify and define the proposed complementary activity, 
specifically describing what the activity would involve and how the 
activity would be conducted;
    (2) Identify the financial activity for which the proposed activity 
would be complementary and provide information sufficient to support a 
finding that the proposed activity should be considered complementary 
to the identified financial activity;
    (3) Describe the scope and relative size of the proposed activity, 
as measured by the percentage of the projected financial holding 
company revenues expected to be derived from and assets associated with 
conducting the activity;
    (4) Discuss the risks that conducting the activity may reasonably 
be expected to pose to the safety and soundness of the subsidiary 
depository institutions of the financial holding company and to the 
financial system generally;
    (5) Describe the potential adverse effects, including potential 
conflicts of interest, decreased or unfair competition, or other risks, 
that conducting the activity could raise, and explain the measures the 
financial holding company proposes to take to address those potential 
effects; and
    (6) Provide any information about the financial and managerial 
resources of the financial holding company and any other information 
requested by the Board.
    (b) What standards will the Board apply in evaluating the notice? 
In evaluating a notice to engage in a complementary activity, the Board 
must consider whether:
    (1) The proposed activity is complementary to a financial activity;
    (2) The proposed activity would pose a substantial risk to the 
safety or soundness of depository institutions or the financial system 
generally; and
    (3) The proposal meets the standards in section 4(j)(2) of the Bank 
Holding Company Act (12 U.S.C. 1843(j)(2)).
    (c) How and when will the Board act on a notice? The Board will 
inform the financial holding company in writing of the Board's 
determination regarding the proposed activity within the period 
described in section 4(j) of the Bank Holding Company Act (12 U.S.C. 
1843(j)).

    By order of the Board of Governors of the Federal Reserve 
System, March 10, 2000.

    Dated: March 10, 2000.
Robert deV. Frierson,
Associate Secretary of the Board.
[FR Doc. 00-6469 Filed 3-16-00; 8:45 am]
BILLING CODE 6210-01-P