[Federal Register Volume 78, Number 66 (Friday, April 5, 2013)]
[Rules and Regulations]
[Pages 20756-20781]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-07688]



[[Page 20755]]

Vol. 78

Friday,

No. 66

April 5, 2013

Part III





Federal Reserve System





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12 CFR Part 242





Definitions of ``Predominantly Engaged In Financial Activities'' and 
``Significant'' Nonbank Financial Company and Bank Holding Company; 
Final Rule

  Federal Register / Vol. 78 , No. 66 / Friday, April 5, 2013 / Rules 
and Regulations  

[[Page 20756]]


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FEDERAL RESERVE SYSTEM

12 CFR Part 242

[Regulation PP; Docket No. R-1405]
RIN 7100-AD64


Definitions of ``Predominantly Engaged In Financial Activities'' 
and ``Significant'' Nonbank Financial Company and Bank Holding Company

AGENCY: Board of Governors of the Federal Reserve System (``Board'').

ACTION: Final rule.

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SUMMARY: The Board is adopting this final rule to establish, for 
purposes of Title I of the Dodd-Frank Wall Street Reform and Consumer 
Protection Act (the ``Dodd-Frank Act'' or ``Act''), the requirements 
for determining if a company is ``predominantly engaged in financial 
activities''; and definitions of the terms ``significant nonbank 
financial company'' and ``significant bank holding company.'' These 
terms are relevant to various provisions of Title I of the Dodd-Frank 
Act, including section 113, which authorizes the Financial Stability 
Oversight Council (``Council'') to designate a nonbank financial 
company for supervision by the Board if the Council determines that the 
nonbank financial company could pose a threat to the financial 
stability of the United States.

DATES: The final rule will become effective on May 6, 2013.

FOR FURTHER INFORMATION CONTACT: Laurie Schaffer, Associate General 
Counsel (202) 452-2272, Paige E. Pidano, Counsel, (202) 452-2803, or 
Christine E. Graham, Senior Attorney, (202) 452-3005, Legal Division; 
or Felton C. Booker, Senior Supervisory Financial Analyst, (202) 912-
4651, Division of Banking Supervision and Regulation, Board of 
Governors of the Federal Reserve System, 20th Street and Constitution 
Avenue NW., Washington, DC 20551. Users of Telecommunication Device for 
Deaf (TDD) only, call (202) 263-4869.

SUPPLEMENTARY INFORMATION: 

I. Background

    The Dodd-Frank Act established the Council, which, among other 
authorities and duties, may subject a ``nonbank financial company'' to 
supervision by the Board and consolidated prudential standards if the 
Council determines that material financial distress at the nonbank 
financial company, or the nature, scope, size, scale, concentration, 
interconnectedness, or mix of the company's activities, could pose a 
threat to the financial stability of the United States.\1\ Nonbank 
financial companies that are designated by the Council under section 
113 of the Dodd-Frank Act are referred to as ``nonbank financial 
companies supervised by the Board.'' \2\
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    \1\ See section 113 of the Dodd-Frank Act; 12 U.S.C. 5323.
    \2\ See section 102(a)(4)(D) of the Dodd-Frank Act; 12 U.S.C. 
5311(a)(4)(D).
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    The authority of the Council to subject a nonbank financial company 
to consolidated prudential supervision by the Board is an important 
component of recent legislative and regulatory changes designed to 
address gaps and weaknesses in the financial regulatory system that 
became evident during the financial crisis. These gaps often allowed 
financial firms whose failure could pose substantial risks to the 
financial stability of the United States to avoid prudential, 
consolidated supervision.
    Title I of the Dodd-Frank Act defines a ``nonbank financial 
company'' to include both a U.S. nonbank financial company and a 
foreign nonbank financial company. The statute, in turn, defines a 
``U.S. nonbank financial company'' as a company (other than a bank 
holding company and certain other specified types of entities) that is 
(i) incorporated or organized under the laws of the United States or 
any State; and (ii) predominantly engaged in financial activities.\3\ A 
``foreign nonbank financial company'' is defined as a company (other 
than a company that is, or is treated as, a bank holding company) that 
is (i) incorporated or organized outside the United States; and (ii) 
predominantly engaged in financial activities.\4\
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    \3\ See section 102(a)(4)(B) of the Dodd-Frank Act (emphasis 
added); 12 U.S.C. 5311(a)(4)(B) (emphasis added). Besides bank 
holding companies, the statute specifically provides that the term 
``U.S. nonbank financial company'' does not include (i) a Farm 
Credit System institution chartered and subject to the Farm Credit 
Act of 1971 (12 U.S.C. 2001 et seq.), (ii) a national securities 
exchange (or parent thereof), clearing agency (or parent thereof, 
unless the parent is a bank holding company), security-based swap 
execution facility, or security-based swap data repository that in 
each case is registered with the SEC, or (iii) a board of trade 
designated as a contract market (or parent thereof), or a 
derivatives clearing organization (or parent thereof, unless the 
parent is a bank holding company), swap execution facility or a swap 
data repository that in each case is registered with the CFTC.
    \4\ See section 102(a)(4)(A) of the Dodd-Frank Act (emphasis 
added); 12 U.S.C. 5311(a)(4)(A) (emphasis added). A foreign bank, or 
foreign company controlling a foreign bank, is treated as a bank 
holding company for purposes of the BHC Act if the foreign bank has 
a branch, agency, or commercial lending company subsidiary in the 
United States and does not control a U.S. bank.
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    For purposes of Title I of the Dodd-Frank Act, a company is 
considered to be ``predominantly engaged'' in financial activities if 
either (i) the annual gross revenues derived by the company and all of 
its subsidiaries from financial activities, as well as from the 
ownership or control of an insured depository institution, represent 85 
percent or more of the consolidated annual gross revenues of the 
company; or (ii) the consolidated assets of the company and all of its 
subsidiaries related to financial activities, as well as related to the 
ownership or control of an insured depository institution, represent 85 
percent or more of the consolidated assets of the company.\5\ The Dodd-
Frank Act requires the Board to establish the requirements for 
determining if a company is ``predominantly engaged in financial 
activities.'' \6\
    Section 165(d)(2) of the Dodd-Frank Act also requires nonbank 
financial companies supervised by the Board and bank holding companies 
with total consolidated assets of $50 billion or more to disclose the 
nature and extent of (i) the company's credit exposure to other 
significant nonbank financial companies and significant bank holding 
companies; and (ii) the credit exposure of such significant entities to 
the company.\7\ The terms ``significant nonbank financial company'' and 
``significant bank holding company'' are used in section 113 of the 
Dodd-Frank Act as well, which specifies that the Council must consider 
the extent and nature of a nonbank company's transactions and 
relationships with other ``significant nonbank financial companies'' 
and ``significant bank holding companies,'' among other factors, in 
determining whether to designate a nonbank financial company for 
supervision by the Board.\8\ The Act does not define the terms 
``significant nonbank financial company'' or ``significant bank holding 
company,'' but instead directs the Board to define those terms by 
rule.\9\
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    \5\ See section 102(a)(6) of the Dodd-Frank Act (emphasis 
added); 12 U.S.C. 5311(a)(6).
    \6\ See section 102(b) of the Dodd-Frank Act; 12 U.S.C. 5311(b).
    \7\ See section 165(d)(2) of the Dodd-Frank Act; 12 U.S.C. 
5365(d)(2).
    \8\ See sections 113(a)(2)(C) and (b)(2)(C) of the Dodd-Frank 
Act; 12 U.S.C. 5323(a)(2)(C) and (b)(2)(C).
    \9\ See sections 102(a)(7) and (b) of the Dodd-Frank Act; 12 
U.S.C. 5311(a)(7) and (b).
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    On February 11, 2011, the Board invited comment on a proposed rule 
that would have (i) established the requirements for determining if a 
company is ``predominantly engaged in financial activities'' for 
purposes of Title I of the Act and (ii) defined the terms ``significant 
nonbank financial company'' and ``significant bank

[[Page 20757]]

holding company'' (``First NPR'').\10\ In response to the First NPR, 
the Board received 23 comments, including comments related to the 
definition of activities that are financial for purposes of Title I.
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    \10\ 76 FR 7731 (February 11, 2011).
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    Among other things, these comments indicated that some commenters 
believed that a firm engaged in financial activities could avoid 
designation simply by choosing not to comply with the conditions 
imposed on the manner in which those activities must be conducted by 
bank holding companies. After considering those comments, as well as 
the language and legislative intent and history of the Dodd-Frank Act 
and the Bank Holding Company Act (``BHC Act''), as amended by the 
Gramm-Leach-Bliley Act (``GLB Act''), on April 2, 2012, the Board 
invited comment on an amendment to the First NPR to clarify that, 
consistent with the purpose of Title I, any activity referenced in 
section 4(k) of the BHC Act will be considered to be a financial 
activity without regard to conditions that do not define whether an 
activity is itself financial but were imposed on bank holding companies 
to ensure that the activity is conducted by bank holding companies in a 
safe and sound manner or to comply with another provision of law 
(``Second NPR'').\11\ In the Second NPR, the Board proposed an appendix 
of the list of the activities that would be considered to be financial 
activities as of April 2, 2012, together with conditions the Board 
believed necessary to define the activity as a financial activity and 
excluding conditions that the Board believed were related to the safe 
and sound conduct of the activity, compliance with other law, or other 
factors not related to whether the activity was financial, for purposes 
of determining whether a company is predominantly engaged in financial 
activities. In response to the Second NPR, the Board received 12 
comments.
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    \11\ 77 FR 21494 (April 10, 2012).
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II. Explanation of Final Rule

    The final rule provides clarity for purposes of determining whether 
particular companies qualify as nonbank financial companies under Title 
I of the Dodd-Frank Act. This is important both in the context of 
Council designation as well as for large bank holding companies and 
nonbank financial companies that are required to report their credit 
exposures to other significant nonbank financial companies pursuant to 
section 165(d). In developing this final rule, the Board has considered 
the comments received on both the First and Second NPRs and the 
language and purposes of the relevant statutory provisions. In 
addition, the Board consulted with the other Council members and member 
agencies.
    After this review, the Board has determined to adopt the attached 
final rule, which includes several modifications of the earlier 
proposals to address matters raised by commenters.

A. Predominantly Engaged in Financial Activities

1. Two-Year Test Based on Consolidated Financial Statements
    The First NPR provided that a company would be considered to be 
predominantly engaged in financial activities if:

     The consolidated annual gross financial revenues of the 
company in either of its two most recently completed fiscal years 
represent 85 percent or more of the company's consolidated annual 
gross revenues (as determined in accordance with applicable 
accounting standards) in that fiscal year; or
     The consolidated total financial assets of the company 
as of the end of either of its two most recently completed fiscal 
years represent 85 percent or more of the company's consolidated 
total assets (as determined in accordance with applicable accounting 
standards) as of the end of that fiscal year.\12\

    \12\ See Sec.  225.301(a)(1) and (2) of the First NPR and Sec.  
242.3(a)(1) and (2) of the Final Rule.

    Several commenters asserted that the 85 percent threshold in the 
revenue and asset tests was too high and that a company should be 
considered to be ``predominantly engaged in financial activities'' if a 
lower percentage of the company's revenues are derived from, or a lower 
percentage of its assets are related to, activities that are financial 
in nature. The statutory language of the Act establishes that a company 
will be considered to be predominantly engaged in financial activities 
if either 85 percent of its revenues are derived from, or 85 percent of 
its assets are related to, financial activities. The Board does not 
have the discretion to lower the 85 percent threshold established by 
Congress. Therefore, the final rule retains the revenue and asset tests 
described above as proposed in the First NPR.
    The final rule also retains the proposed definition of 
``consolidated annual gross financial revenues'' of a company. A 
company's consolidated annual gross financial revenues would be 
determined in accordance with applicable accounting standards, and are 
that portion of the consolidated annual gross revenues derived directly 
by the company, or indirectly by any of its consolidated subsidiaries, 
from: (i) Activities that are financial in nature; or (ii) the 
ownership, control, or activities of an insured depository institution 
or any subsidiary of an insured depository institution.\13\ Similarly, 
the final rule retains the proposed definition of ``consolidated total 
financial assets'' of a company, which is that portion of the company's 
consolidated total assets, as determined in accordance with applicable 
accounting standards, that are related to (i) activities that are 
financial in nature, or (ii) the ownership, control, or activities of 
an insured depository institution or any subsidiary of an insured 
depository institution.\14\
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    \13\ See Sec.  242.3(b) of the Final Rule.
    \14\ See Sec.  242.3(c) of the Final Rule.
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    As in the First NPR, the final rule provides that computation of 
assets and revenues for purposes of determining if a company meets the 
statutory threshold would be based on the relevant company's annual 
financial revenues in, or financial assets at the end of, either of its 
two most recent fiscal years. This methodology is designed to account 
for transitory fluctuations in assets and revenues that may not be 
indicative of any substantive change in the financial nature of the 
company or its predominant activities and to allow the Council to 
effectively fulfill its important responsibilities of designating (and 
reviewing existing designations of) those nonbank financial companies 
whose material financial distress could pose a threat to the financial 
stability of the United States.
 2. Activities that are Financial in Nature
    The Dodd-Frank Act provides that financial activities are those 
activities that have been defined as financial in nature in section 
4(k) of the BHC Act.\15\ In response to issues raised by comments 
received on the First NPR, the Board invited comment in the Second NPR 
on a proposal that any activity described in section 4(k) of the BHC 
Act would be considered financial in nature under Title I regardless of 
whether the activity is conducted in conformance with conditions 
imposed on bank holding companies conducting the activity that do not 
define the financial activity itself, such as conditions related to 
safety and soundness or related to compliance with another provision of 
law, such as the Glass-Steagall Act. The Second NPR included an 
appendix that enumerated the activities and related conditions the 
Board proposed to retain as part of the

[[Page 20758]]

definitions of financial activities under section 4(k) of the BHC Act.
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    \15\ See section 102(a)(6) of the Dodd-Frank Act; 12 U.S.C. 
5311(a)(6).
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    The Board received several comments on the approach taken in the 
Second NPR. One commenter expressed support for the approach proposed 
in the Second NPR, while others raised questions regarding the 
approach. The final rule generally maintains the approach set forth in 
the Second NPR, with certain modifications that address matters raised 
by commenters, including the restoration of several conditions the 
Board proposed to remove in the Second NPR.
    The Board also received several comments on the First NPR 
requesting clarity regarding the relationship between certain types of 
assets and revenues and financial activities. These comments and the 
Board's responses are described in greater detail below.
a. Scope of Financial Activities
    Some commenters asserted that the Board does not have the authority 
to issue regulations regarding the scope of activities that are 
financial in nature for purposes of Title I. One commenter asserted 
that, while the Dodd-Frank Act expressly provides the Board with 
rulemaking authority regarding the requirements for determining whether 
a company is predominantly engaged in financial activities, the Board's 
rulemaking authority is limited to establishing technical guidelines 
for calculating a company's financial revenues or assets in assessing 
whether a particular company and its activities fall within the defined 
terms of ``predominantly engaged'' and ``financial activities,'' such 
as identifying the accounting methods that may be used in these 
calculations.\16\
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    \16\ See letter dated May 25, 2012, to Jennifer J. Johnson, 
Secretary, Board of Governors of the Federal Reserve System, from 
David T. Hirschmann, President and Chief Executive Officer, Center 
for Capital Markets Competitiveness, U.S. Chamber of Commerce, p. 3.
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    The Board believes that the approach taken in the Second NPR is 
authorized under the Dodd-Frank Act's grant of authority to the Board 
in section 102(b) to establish, by regulation, the requirements for 
determining if a company is predominantly engaged in financial 
activities, as defined in section 102(a)(6) of the Dodd-Frank Act.\17\ 
Section 102(a)(6) provides that a company is ``predominantly engaged in 
financial activities'' if more than 85 percent of the company's and its 
subsidiaries' annual gross revenues are derived from, or more than 85 
percent of the company's and its subsidiaries' consolidated assets are 
related to, ``activities that are financial in nature'' as defined in 
section 4(k) of the BHC Act. The identification of the scope of 
activities that are ``financial in nature'' as defined in section 4(k) 
of the BHC Act is a necessary requirement for determining whether a 
company is predominantly engaged in financial activities and, thus, is 
within the Board's rulemaking authority under section 102(b).
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    \17\ See section 102(b) of the Dodd-Frank Act, 12 U.S.C. 
5311(b).
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    As noted, section 102(a)(6) refers to ``activities that are 
financial in nature (as defined in section 4(k) of the Bank Holding 
Company Act of 1956)).'' Section 4(k) of the BHC Act, added by the GLB 
Act, authorizes bank holding companies that qualify as ``financial 
holding companies'' to engage in a wide range of financial 
activities.\18\ Section 4(k) defines as ``financial'' a list of 
Congressionally-authorized activities added by the GLB Act and 
activities previously approved by the Board for bank holding companies 
pursuant to sections 4(c)(8) and (13) of the BHC Act, which are 
incorporated by reference. Section 4(k) and the Board's rules 
implementing sections 4(c)(8) and (13) also impose conditions on the 
conduct of some of those activities for safety and soundness reasons or 
to comply with other provisions of law. Some of the Congressionally-
authorized activities for financial holding companies, such as lending, 
overlap completely with activities that had been authorized by the 
Board for bank holding companies. Others expanded the authorization of 
activities previously approved by the Board for bank holding companies, 
such as certain insurance activities, by removing the conditions that 
apply to bank holding companies engaging in the activity. Bank holding 
companies that are not financial holding companies may only engage in 
activities previously approved by the Board under sections 4(c)(8) and 
4(c)(13) of the BHC Act and are subject to the related conditions.
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    \18\ 12 U.S.C. 1843(l)(1). To engage in the broad range of 
activities authorized by section 4(k), a bank holding company must 
be well-capitalized and well managed, and its subsidiary insured 
depository institutions must also be well-capitalized and well-
managed and have `satisfactory' ratings under the Community 
Reinvestment Act.
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    While the BHC Act is clear as to the type and scope of activities 
that are permissible for each category of bank holding company, section 
102(b) of the Dodd-Frank Act is silent as to how the overlapping 
definitions of financial activities and related conditions incorporated 
in section 4(k) should be applied in determining whether companies that 
are not bank holding companies are predominantly engaged in financial 
activities for purposes of Title I. Because section 102 does not 
address how to apply these overlapping and sometimes inconsistent 
definitions of financial activities or how to apply the related 
conditions incorporated in section 4(k) in assessing the financial 
activities of nonbank firms, the reference in section 102 of the Dodd-
Frank Act to financial activities ``as defined in section 4(k)'' is 
ambiguous. As the agency with sole authority to ``establish, by 
regulation, the requirements for determining if a company is 
predominantly engaged in financial activities, as defined in section 
102(a)(6),'' it is appropriate for the Board to resolve this 
ambiguity.\19\
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    \19\ See section 102(b) of the Dodd-Frank Act, 12 U.S.C. 
5311(b).
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    Under Supreme Court precedent, a statutory term defined by cross-
reference to another statute is not alone evidence of clear 
Congressional intent that the implementing agency construe the term 
identically. In Environmental Defense v. Duke Energy Corp. 
(``Duke''),\20\ the Court held that the general presumption of 
statutory construction ``that the same term has the same meaning when 
it occurs here and there in a single statute,'' may be overcome where 
context indicates that the term was intended to be construed 
differently.\21\
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    \20\ 549 U.S. 561 (2007).
    \21\ See id. at 574, 576, citing Atlantic Cleaners & Dyers, Inc. 
v. United States, 286 U.S. 427, 433. The Court considered whether 
the Environmental Protection Agency (``EPA'') was required to 
interpret the term ``modification'' identically where one section of 
the Clean Air Act (``CAA'') defined ``modification'' ``as defined 
in'' a different section of the CAA. The Court held that when 
considering whether a term that is used in different statutes must 
be interpreted identically, ``context counts.'' See id. at 575-76, 
citing United States v. Cleveland Indians Baseball Co., 532 U.S. 
200, 213 (2001). The Court considered the context in which the term 
``modification'' was used and the legislative history of the 
relevant statutory provisions and found no evidence of Congressional 
intent that ``modification'' be construed identically by the EPA 
despite the cross-reference to the term in the statute because the 
contexts in which the term was used and the purposes of each use 
were different.
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    Consistent with the Court's analysis in Duke, the Board believes 
that neither the text, the context in which the text appears, nor the 
legislative purpose or history of the Dodd-Frank Act suggests that 
Congress intended that a nonbank company must engage in financial 
activities in compliance with all the conditions and requirements 
imposed under section 4(k) and the Board's implementing regulations in 
order for the company to be considered to be engaged in the relevant 
financial activity. A reading of Title I that limited the scope of 
companies considered to be ``predominantly engaged in financial

[[Page 20759]]

activities'' to only those companies that conduct activities in 
compliance with the conditions applicable to bank holding companies 
would undermine the purpose of Title I and the authority granted by 
Congress to the Council to protect U.S. financial stability.\22\ 
Defining financial activities for purposes of Title I to include all of 
the conditions imposed on the conduct of the activities by bank holding 
companies would lead to the absurd result that some companies that are 
predominantly engaged in financial activities could avoid consideration 
for designation by the Council simply by choosing not to abide by one 
or more conditions that were imposed on bank holding companies to 
ensure the safe and sound conduct of the activity or compliance with 
other legal restrictions unrelated to whether the activity is a 
financial activity.
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    \22\ Committee on Banking, Housing, and Urban Affairs Report, S. 
Rep. No. 111-176, April 15, 2010, page 3, citing Testimony of 
Timothy Geithner, Secretary of the Treasury, to the Banking 
Committee, June 18, 2009.
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    The Board's proposed approach to addressing the scope of activities 
is consistent with Congressional intent as reflected in Title I as well 
as the legislative history of the Dodd-Frank Act. Other sections of 
Title I support the view that Congress intended that companies could be 
eligible for designation by the Council regardless of whether these 
companies complied with the non-definitional conditions applied to bank 
holding companies in the implementation of section 4(k). For instance, 
section 167(a) provides that a nonbank financial company supervised by 
the Board is not required ``to conform its activities to the 
requirements of section 4 of the BHC Act.'' \23\ This section 
demonstrates that Congress recognized that nonbank financial companies 
do not conduct their activities in compliance with the requirements 
applicable to bank holding companies. It would be illogical to conclude 
that a company would be eligible for Council designation only if it 
conducted its financial activities in conformance with the requirements 
imposed on bank holding companies' conduct of financial activities set 
forth in section 4(k), but would not be required to conform its 
financial activities to the conditions imposed on bank holding 
companies by section 4(k) after being designated by the Council for 
Board supervision.
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    \23\ See 12 U.S.C. 5367.
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    In addition, the Council's anti-evasion authority demonstrates 
Congress's intent to give the Council the authority to consider a broad 
range of nonbank financial companies for designation.\24\ Section 
113(c) of the Dodd-Frank Act gives the Council the authority to subject 
the financial activities of any company to supervision by the Board if 
the Council determines, either on its own or pursuant to a 
recommendation by the Board, that: (i) The company is organized and 
operates in such a manner to evade application of Title I of the Dodd-
Frank Act; and (ii) material financial distress related to, or the 
nature, scope, size, scale, concentration, interconnectedness, or mix 
of, the company's financial activities would pose a threat to the 
financial stability of the United States.\25\ Companies that are 
engaged in activities that are financial in nature, but that alter the 
manner in which they conduct those activities such that they evade 
designation by the Council under section 113 and supervision by the 
Board may be subject to designation by the Council under the special 
anti-evasion authority in section 113(c).
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    \24\ See 12 U.S.C. 5323(c).
    \25\ See id.
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    The legislative history of the Dodd-Frank Act demonstrates that 
Congress believed that the statutory definition of a ``nonbank 
financial company'' would make eligible for Council designation 
companies that were not bank holding companies but that engaged in a 
broad range of financial activities. For instance, several members of 
Congress indicated that, while in their view designation may not be 
appropriate for mutual funds, the activities conducted by mutual funds, 
which typically do not conform to the prudential conditions imposed on 
the investment advisory or management activities of bank holding 
companies, were financial activities for purposes of Title I.\26\ In 
addition, section 165 of the Dodd-Frank Act, which sets forth the 
enhanced prudential standards applicable to nonbank financial companies 
designated by the Council, further illustrates that Congress believed 
that the activities of investment companies were financial activities. 
Section 165(b)(1)(A)(i) requires the Board to impose risk-based capital 
requirements and leverage limits on nonbank financial companies 
designated by the Board and certain bank holding companies, ``unless 
the Board of Governors, in consultation with the Council, determines 
that such requirements are not appropriate for a company subject to 
more stringent prudential standards because of the activities of such 
company (such as investment company activities or assets under 
management) or structure, in which case, the Board of Governors shall 
apply other standards that result in similarly stringent risk 
controls.'' \27\ This statutory requirement indicates that Congress 
believed that investment company activities were financial.
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    \26\ See, for example, 156 Cong. Rec. S5873 (daily ed. July 15, 
2010) (statement of Sen. Cardin) (indicating that mutual funds and 
their advisers would be eligible for designation by the Council by 
stating that section 115 of the Dodd-Frank Act would ``ensure that 
mutual funds and their advisers are not inadvertently subjected to 
unworkable standards in the unlikely event the Financial Stability 
Oversight Council designates [mutual funds] as systemically 
risky''); See also 156 Cong. Rec. S5902-5903 (daily ed. July 15, 
2010) (statement of Sen. Kerry) (indicating that although mutual 
funds and their advisers would be eligible for designation by the 
Council, regulation by the Board may not be appropriate for such 
companies because they do not pose a risk to United States financial 
stability, by stating that ``there are large companies providing 
financial services that are in fact traditionally low-risk 
businesses, such as mutual funds and mutual fund advisers'' and that 
Congress did ``not envision nonbank financial companies that pose 
little risk to the stability of the financial system,'' such as 
mutual funds and mutual fund advisers, ``to be supervised by the 
Federal Reserve'').
    \27\ See section 165(b)(1)(A)(i) of the Dodd-Frank Act; 12 
U.S.C. 5365(b)(1)(A)(i).
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    Moreover, references in section 4(k) itself distinguish between 
financial activities and the conditions imposed on those activities. 
Among the activities that section 4(k) defines as being ``financial in 
nature'' are all of the activities that the Board had determined, by 
regulation or order, prior to November 12, 1999, to be ``so closely 
related to banking or managing or controlling banks as to be a proper 
incident thereto (subject to the same terms and conditions contained in 
such order or regulation, unless modified by the Board)'' under section 
4(c)(8) of the BHC Act.\28\ By recognizing that the Board could modify 
the terms and conditions in the orders and rules authorizing these 
activities, section 4(k) itself recognizes that these terms and 
conditions do not necessarily determine whether the activity is a 
financial activity. Pursuant to section 4(k), an activity authorized 
under section 4(c)(8) is a financial activity regardless of the 
conditions imposed by rule or order--all of which may be modified or 
removed.'' \29\
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    \28\ See 12 U.S.C. 1843(k)(4)(F).
    \29\ Distinguishing between the definition of an activity and 
conditions imposed for reasons related to other policy and statutory 
factors is consistent with the Board's long-standing interpretations 
of the BHC Act, which is the Act to which section 102 of the Dodd-
Frank Act refers. For example, in the Board's 1997 revisions to 
Regulation Y (``1997 rulemaking''), the Board removed several of the 
conditions imposed on bank holding companies conducting activities 
that are ``closely related to banking'' by distinguishing between 
the conditions that were ``necessary to establish the definition of 
the permitted activity'' and those that were imposed for other 
purposes, such as ``to prevent circumvention of another statute, 
such as the Glass-Steagall Act. See 62 FR 9290, 9305 (February 28, 
1997). The Board stated that the revisions made by the 1997 
rulemaking were necessary to remove conditions that ``[were] 
outmoded, [were] superseded by Board order, or [did] not apply to 
insured depository institutions conducting those same activities,'' 
and the conditions retained in section 225.28 were ``necessary to 
establish the definition of the permitted activity or to prevent 
circumvention of another statute, such as the Glass-Steagall Act.'' 
The Board further noted that its ``removal of [such] restrictions 
from the regulation does not affect the Board's determination that'' 
these activities are ``so closely related to banking as to be a 
proper incident thereto'' and thus permissible for bank holding 
companies.

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[[Page 20760]]

    One commenter expressed support for the Board's proposal to 
consider financial activities without regard to the conditions imposed 
on the conduct of the activities by bank holding companies when 
considering whether a company is predominantly engaged in financial 
activities for purposes of Title I.\30\ The commenter argued that 
defining financial activities for purposes of Title I to include all of 
the conditions imposed on the conduct of the activities by bank holding 
companies would enable some companies that are predominantly engaged in 
financial activities to avoid consideration for designation by the 
Council simply by choosing not to comply with conditions imposed for 
prudential or other reasons on the manner in which the activities must 
be conducted by bank holding companies. Some commenters questioned the 
approach taken in the Second NPR to the extent that it appeared that 
the approach might cover activities routinely conducted by non-
financial firms such as manufacturers or retailers. In these 
commenters' view, an overly broad interpretation of the definition of 
financial activities subverts the ``85-percent'' test imposed by 
statute. In the final rule, the Board has addressed commenters' 
concerns that activities routinely conducted by non-financial companies 
could be considered financial through restoration of some of the 
conditions.
---------------------------------------------------------------------------

    \30\ See letter dated May 24, 2012, to Jennifer J. Johnson, 
Secretary, Board of Governors of the Federal Reserve System, from 
Christopher Cole, Senior Vice President and Senior Regulatory 
Counsel, Independent Community Bankers of America.
---------------------------------------------------------------------------

b. Description of ``Financial Activities''
    In determining whether or not to include a condition imposed on the 
scope of an activity or the manner in which an activity may be 
conducted, the Board considered many factors, including the information 
and views presented by commenters. The Board also reviewed the 
statutory language of section 4(k) of the BHC Act and the Board's 
releases related to the activities that are financial in nature under 
section 4(k). In addition, the Board reviewed the legislative history 
of the GLB Act, which itself removed or modified many of the conditions 
applicable to the conduct of financial activities by bank holding 
companies and financial holding companies.\31\
---------------------------------------------------------------------------

    \31\ In amending Regulation Y consistent with the GLB Act, the 
Board noted that the GLB Act eliminated many of the ``detailed 
restrictions on relationships and transactions between depository 
institutions and securities affiliates'' that had been required 
prior to the passage of the GLB Act. See 65 FR 14440, 14441 (March 
17, 2000). The Board also noted that in light of the GLB Act 
``securities underwriting, dealing, and market making * * * is 
authorized for financial holding companies in a broader form'' than 
had previously been permitted. See id. at 14433, 14435 (March 17, 
2000).
---------------------------------------------------------------------------

    As an initial matter, the Board notes that the only role of this 
rulemaking is to define activities that are financial. This rulemaking 
does not designate any specific entity for enhanced supervision under 
Title I of the Dodd-Frank Act. Authority to designate an entity for 
enhanced supervision rests exclusively with the Council. Thus, clarity 
regarding whether any specific entity will be designated under Title I 
must come from other agencies.\32\
---------------------------------------------------------------------------

    \32\ As noted previously, Title I of the Dodd-Frank Act 
authorizes the Council to take certain actions with respect to 
nonbank financial companies, including designating a nonbank 
financial company for Board supervision pursuant to section 113 and 
issuing recommendations under section 120 to a primary financial 
regulatory agency to apply new or heightened standards to a 
financial activity conducted by nonbank financial companies under 
the jurisdiction of that regulatory agency. A nonbank financial 
company is a company that is predominantly engaged in financial 
activities. Therefore, the application of the definitions of 
financial activities and the determination that a company is 
predominantly engaged in financial activities will be subject to 
review by the Council with respect to an action taken by the Council 
involving nonbank financial companies under Title I of the Dodd-
Frank Act. 12 U.S.C. 5323(a) and (b). The Dodd-Frank Act provides a 
specific procedure in the designations process under which a company 
may challenge the Council's proposed determination that the nonbank 
financial company could pose a threat to U.S. financial stability 
and shall be subject to Board supervision. 12 U.S.C. 5323(e) and 
(h).
---------------------------------------------------------------------------

    In the Second NPR, the Board noted that the list of financial 
activities authorized under section 4(k) included overlapping and 
redundant activities, and invited comment on whether overlapping or 
redundant financial activities should be combined or removed, as 
appropriate, solely for purposes of determining whether a nonbank 
company is predominantly engaged in financial activities, in order to 
reduce the ambiguity created by these overlapping and sometimes 
inconsistent activities and to simplify the proposed appendix. The 
Board did not receive comment on this request, and, consistent with the 
Second NPR, the Board has maintained the complete list of financial 
activities authorized under section 4(k), including the overlapping and 
redundant activities, in order to ensure completeness and to avoid 
confusion based on the specific statutory authority relied on in 
defining an activity. To reduce the ambiguity created by the 
overlapping and redundant descriptions of financial activities included 
in the appendix, a company that engages in a particular activity in a 
manner that does not comply with the narrower definition of the 
particular activity will be considered to be engaged in a financial 
activity if its activities are captured by the broader description of 
the activity.
    The following discussion describes the activities enumerated in the 
appendix to the final rule that are financial in nature as defined in 
section 4(k) of the BHC Act for purposes of determining whether a 
company is predominantly engaged in financial activities. The 
discussion also identifies the conditions imposed in section 4(k) or by 
the Board's implementing regulations pursuant to sections 4(c)(8) and 
(13) that are not reflected in the appendix because they were imposed 
for safety and soundness considerations or to comply with other 
provisions of law and, thus, are not relevant for determining whether 
these activities are considered financial for purposes of determining 
whether a firm is predominantly engaged in financial activities. As 
noted previously, the final rule reinstates several conditions that the 
Board proposed to remove from the definitions of financial activities 
in the Second NPR. The final rule retains all of the conditions set 
forth in the description of financial activities specifically 
enumerated under section 4(k), other than two conditions with respect 
to the activity of investing as part of a bona fide underwriting or 
merchant or investment banking activity, and one condition with respect 
to insurance company portfolio investments, which do not define the 
activity itself and were imposed for safety and soundness reasons and 
to ensure compliance with other provisions of law.
i. Financial activities added to the BHC Act by the GLB Act
    The following financial activities were authorized for financial 
holding companies and added to section 4(k) of the BHC Act by the GLB 
Act. These activities are financial activities for purposes of 
determining whether a firm is predominantly engaged in financial 
activities under Title I.

[[Page 20761]]

 Lending, Exchanging, Transferring, Investing for Others, and 
Safeguarding Money or Securities
    The activities of lending, exchanging, transferring, investing for 
others, or safeguarding money or securities are specifically 
enumerated, without conditions, in section 4(k) of the BHC Act.\33\ The 
activity of ``investing for others'' includes buying, selling, or 
otherwise acquiring and disposing of money or securities in order to 
benefit from changes in the value of those assets and distribute 
profits to investors. These activities are often conducted by 
investment advisors, wealth managers, limited purpose trust companies, 
mutual funds, hedge funds, private equity funds, real estate investment 
trusts, and similar vehicles.
---------------------------------------------------------------------------

    \33\ 12 U.S.C. 1843(k)(4)(A).
---------------------------------------------------------------------------

    One commenter asserted that the Board had not authorized bank 
holding companies to control or be an open-end investment company and 
that, as a result, open-end investment companies cannot be found to be 
engaged in financial activities as defined in section 4(k) of the BHC 
Act. The commenter argued that open-end investment companies (e.g., 
mutual funds) are not engaged in a financial activity as defined in 
section 4(k) of the BHC Act, and that the Board should ``reduce 
uncertainty created by the ambiguity in Title I * * * to make clear to 
investors and the public that [money market mutual funds] will not be 
designated * * * under Title I'' of the Dodd-Frank Act.\34\ The crux of 
this commenter's argument is the assertion that the Board has not 
issued any order approving an application or request by a bank holding 
company to be or to control a mutual fund \35\ and therefore such 
activities cannot be considered to be financial.
---------------------------------------------------------------------------

    \34\ See letter dated March 30, 2011, to Jennifer J. Johnson, 
Secretary, Board of Governors of the Federal Reserve System, from 
John D. Hawke, Jr., Arnold & Porter LLP, p. 7 (emphasis in 
original).
    \35\ See id. at p. 8.
---------------------------------------------------------------------------

    The Board believes that it is clear that open-end investment 
companies, such as mutual funds including money market funds, as well 
as closed-end investment companies, engage in financial activities as 
defined in section 4(k) of the BHC Act. The Board's regulations have 
long authorized bank holding companies to engage in organizing, 
sponsoring, and managing mutual funds and closed-end investment 
companies and serving as an investment adviser to mutual funds and 
closed-end investment companies and others using authority described in 
section 4(k) of the BHC Act.\36\ As the commenter recognized, prior to 
enactment of the GLB Act in 1999, the Board permitted bank holding 
companies to own more than 5 percent (and up to 25 percent) of the 
shares of an open-end investment company--a determination that 
represents a finding that open-end investment companies engage in a 
financial activity.\37\ The investment limitation reflects a decision 
by the Board that the public benefits of allowing a bank holding 
company to own more than 25 percent of the shares of a mutual fund did 
not outweigh the potential costs consequent with treating the mutual 
fund as a subsidiary of the bank holding company. Under the BHC Act, 
the decision to allow a bank holding company to own more than 5 percent 
of the shares of a mutual fund is sufficient to indicate that the 
mutual fund itself, which is a company, is engaged in a financial 
activity.\38\ The activity of organizing, sponsoring, and managing a 
mutual fund was also determined to be usual in connection with the 
transaction of banking or other financial operations abroad prior to 
November 11, 1999, and, thus, is incorporated as a financial activity 
in section 4(k) by the GLB Act.\39\ The Board's regulations prohibit 
bank holding companies from exerting managerial control over the 
companies in which the mutual fund invests and require bank holding 
companies to reduce their ownership to less than 25 percent of the 
equity of the mutual fund within one year of sponsoring the fund.\40\ 
These limitations were imposed to prevent circumvention of the 
investment restrictions in the BHC Act.
---------------------------------------------------------------------------

    \36\ See, e.g., 12 CFR 211.10(a)(11); 225.28(b)(6)(i); 
225.86(b)(3); and 225.125. See also, e.g., Mellon Bank Corporation, 
79 Federal Reserve Bulletin 626 (1993), and Bayerische Vereinsbank 
AG, 73 Federal Reserve Bulletin 155 (1987).
    \37\ See letter dated June 24, 1999, to H. Rodgin Cohen, Esq., 
Sullivan & Cromwell (First Union Corporation), from Jennifer J. 
Johnson, Secretary of the Board of Governors of the Federal Reserve 
System. See also 12 CFR 225.86(b)(3).
    \38\ Bank holding companies are generally prohibited from owning 
more than 5 percent of the voting shares of a company unless that 
company is engaged only in a financial activity. See 12 U.S.C. 
1843(a).
    \39\ 12 U.S.C. 1843(k)(4)(G); 12 CFR 225.86(b)(3).
    \40\ 12 CFR 225.86(b)(3).
---------------------------------------------------------------------------

    Moreover, section 4(k) itself authorizes all of the component 
activities in which a mutual fund engages--investing for others,\41\ 
merchant banking,\42\ investment advice,\43\ and underwriting \44\--as 
financial. These activities are defined as financial under section 4(k) 
separately from, and in addition to, those activities previously 
approved by the Board as being so closely related to banking as to be a 
proper incident thereto, or usual in connection with the transaction of 
banking or other financial operations abroad, which are incorporated 
into the definition of financial activities in section 4(k).\45\
---------------------------------------------------------------------------

    \41\ 12 U.S.C. 1843(k)(4)(A).
    \42\ 12 U.S.C. 1843(k)(4)(H).
    \43\ 12 U.S.C. 1843(k)(4)(C).
    \44\ 12 U.S.C. 1843(k)(4)(E).
    \45\ In amending Regulation Y consistent with the GLB Act, the 
Board added the financial activities added to section 4(k) by the 
GLB Act and noted that in light of the passage of the GLB Act 
``securities underwriting, dealing, and market making * * * is 
authorized for financial holding companies in a broader form'' than 
had previously been permitted. See 65 FR 14440, 14443, 14435 (March 
17, 2000).
---------------------------------------------------------------------------

    Section 4(k) specifically defines the activities of underwriting, 
dealing in, or making a market in securities as a financial activity, 
which includes key components of sponsoring and distributing mutual 
funds and investment companies. Section 4(k) also specifically 
enumerates as financial activities providing financial, investment, and 
economic advisory services and investing for others, which includes 
buying, selling, or otherwise acquiring and disposing of money or 
securities in order to benefit from changes in the value of those 
assets and distribute profits to investors. Similarly, section 4(k) 
authorizes merchant banking activities--which represent investments 
made for the purpose of profiting from price appreciation--as 
financial.
    The fact that the Board has imposed prudential conditions on bank 
holding companies engaged in the activity of organizing, sponsoring, or 
managing a mutual fund does not negate the fact that the activity is 
financial for purposes of section 4(k).\46\ Moreover, while open-end 
investment companies (and other investment vehicles) have not applied 
to become bank holding companies, the Board does not believe that this 
in any way reflects a judgment that the companies are not engaged in 
financial activities. It is more likely a reflection that open-end 
investment companies (and similar investment vehicles) have chosen not 
to control banks in order to avoid the capital, risk management, and 
other supervisory requirements attendant to becoming a bank holding 
company.
---------------------------------------------------------------------------

    \46\ As noted previously, bank holding companies are generally 
prohibited from owning more than 5 percent of the voting shares of a 
company unless that company is engaged only in a financial activity. 
See 12 U.S.C. 1843(a).
---------------------------------------------------------------------------

 Insurance Activities
    Insuring, guaranteeing, or indemnifying against loss, harm, damage, 
illness, disability, or death, or providing and issuing annuities, and 
acting as principal, agent, or broker for purposes of the foregoing, in 
any state,

[[Page 20762]]

are financial activities specifically enumerated in section 4(k) of the 
BHC Act.\47\
---------------------------------------------------------------------------

    \47\ 12 U.S.C. 1843(k)(4)(B). In amending Regulation Y 
consistent with the GLB Act, the Board noted that section 4(k)(4) 
authorized financial activities, including ``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).'' See 65 FR 14433, 14435 (March 17, 
2000).
---------------------------------------------------------------------------

 Financial, Investment, and Economic Advisory Services
    Financial, investment, and economic advisory services are financial 
activities specifically enumerated in section 4(k) of the BHC Act.\48\ 
These activities may be provided individually or in combination and 
include discretionary and non-discretionary investment advisory 
activities. This broad authorization to provide financial, investment, 
or economic advisory services also includes activities that the Board 
previously determined were closely related to banking. For example, the 
Board determined that acting as an investment or financial advisor to 
any person was closely related to banking, including, without 
limitation, the activities of sponsoring, organizing, and managing a 
closed-end investment company, such as a hedge fund, and furnishing 
general economic information and advice.\49\ The Board also previously 
determined that providing administrative and other services to mutual 
funds could be provided in connection with acting as an investment or 
financial advisor as activities that were closely related to banking, 
as described further below.
---------------------------------------------------------------------------

    \48\ 12 U.S.C. 1843(k)(4)(C).
    \49\ See 12 CFR 225.28(b)(6) and 225.125.
---------------------------------------------------------------------------

 Issuing or Selling Instruments Representing Interests in Pools 
of Bank-Permissible Assets
    Issuing or selling instruments representing interests in pools of 
assets permissible for a bank to hold directly is a financial activity 
specifically enumerated in section 4(k) of the BHC Act.\50\
---------------------------------------------------------------------------

    \50\ 12 U.S.C. 1843(k)(4)(D).
---------------------------------------------------------------------------

 Underwriting, Dealing, and Market Making
    Underwriting, dealing in, or making a market in securities is a 
financial activity specifically enumerated in section 4(k) of the BHC 
Act,\51\ which includes sponsoring and distributing all types of mutual 
funds and investment companies.\52\
---------------------------------------------------------------------------

    \51\ 12 U.S.C. 1843(k)(4)(E).
    \52\ See H.R. Rep. No. 106-434 at 153 (1999) (Conf. Rep.)
---------------------------------------------------------------------------

 Merchant Banking
    Section 4(k)(4)(H) of the BHC Act describes the financial activity 
of acquiring or controlling shares, assets or ownership interests, 
including debt or equity securities, in a company engaged in any 
activity not authorized under section 4 of the BHC Act ``as part of a 
bona fide underwriting or merchant or investment banking activity, 
including investment activities engaged in for the purpose of 
appreciation and ultimate resale or disposition of the investment'' 
\53\ (``merchant banking''). Section 4(k)(4)(H) imposes several 
requirements on financial holding companies seeking to engage in 
merchant banking activities. In particular, (i) the shares may not be 
acquired or held by a depository institution; (ii) the shares must be 
acquired and held by a securities affiliate or an affiliate thereof, or 
in the case of a financial holding company that has an insurance 
company affiliate, by an affiliate that provides investment advice to 
an insurance company and is registered pursuant to the Investment 
Advisers Act of 1940, or an affiliate thereof; (iii) the shares must be 
held as part of a bona fide underwriting or merchant or investment 
banking activity, including investment activities engaged in for the 
purpose of appreciation and ultimate resale or disposition of the 
investment; (iv) the shares are held for a period of time to enable the 
sale or disposition on a reasonable basis consistent with the financial 
viability of the company's underwriting, merchant, or investment 
banking activities; and (v) during the period the shares are held, the 
bank holding company does not routinely manage or operate the company 
except as may be necessary to obtain a reasonable return on investment 
upon resale or disposition.\54\
---------------------------------------------------------------------------

    \53\ 12 U.S.C. 1843(k)(4)(H).
    \54\ See id.
---------------------------------------------------------------------------

    The condition in section 4(k)(4)(H) requiring that the shares only 
be held for a period of time to enable their sale or disposition on a 
reasonable basis consistent with the financial viability of the 
company's merchant banking activities is an essential element of a bona 
fide merchant banking activity. Thus, this condition is reflected in 
the appendix. Bona fide merchant banking activities involve investing 
with the intent to sell the investment at some later point in time at 
which a profit is expected to be realized. For example, companies such 
as hedge funds, mutual funds, and private equity firms \55\ that are 
engaged in bona fide merchant banking activities typically make 
investments in companies that they believe will increase in value over 
time and that can be resold at a profit. Hedge funds, mutual funds, and 
private equity funds invest with the expectation of selling those 
instruments at a future date in order to realize profits consistent 
with a particular investment strategy rather than for the purpose of 
owning and operating the business.
---------------------------------------------------------------------------

    \55\ See H.R. Rep. No. 106-434 at 154 (1999) (Conf. Rep.) 
(describing the merchant banking authority under section 4(k)(4)(H) 
as authorizing a financial holding company (``FHC'') to acquire an 
ownership interest ``in an entity engaged in any kind of trade or 
business whatsoever * * * whether acting as principal, on behalf of 
one or more entities (e.g., as adviser to a fund, regardless of 
whether the FHC is also an investor in the fund), including entities 
that the FHC controls (other than a depository institution or a 
subsidiary of a depository institution), or otherwise.'').
---------------------------------------------------------------------------

    The Board and the Secretary of the Treasury jointly issued 
regulations adopting holding periods for merchant banking investments 
by financial holding companies pursuant to section 4(k)(4)(H).\56\ 
Specific time periods are not set forth in section 4(k) of the BHC Act. 
As such, they are not included in the definition of merchant banking 
for purposes of Title I. Nevertheless, the time periods adopted by the 
Board and the Secretary of the Treasury are instructive in determining 
whether a nonbank company is engaged in bona fide merchant banking 
activities. Thus, for purposes of determining whether a nonbank company 
is predominantly engaged in financial activities under Title I, nonbank 
companies that acquire and hold shares for the period permitted for 
financial holding companies under the Board's regulations will be 
presumed to be holding the shares for the purpose of appreciation and 
ultimate resale or disposition in accordance with the condition in 
section 4(k)(4)(H). This presumption will help companies determine 
whether they are predominantly engaged in financial activities. In 
addition, this presumption will reduce burden on companies that are 
required to report their credit exposure to significant bank holding 
companies and significant nonbank financial companies under section 
165(d) of the Dodd-Frank Act.\57\
---------------------------------------------------------------------------

    \56\ See 12 CFR 225.172 and 12 CFR 1500.3, respectively.
    \57\ As previously discussed, section 165(d)(2) requires nonbank 
financial companies supervised by the Board and bank holding 
companies with total consolidated assets of $50 billion or more to 
submit reports to the Board, the Council, and the FDIC on the nature 
and extent of (i) the company's credit exposure to other significant 
nonbank financial companies and significant bank holding companies; 
and (ii) the credit exposure of such significant entities to the 
company. In order to comply with this reporting obligation, 
companies required to report their credit exposure to significant 
nonbank financial companies must be able to identify those companies 
that are predominantly engaged in financial activities, and thus, 
considered to be nonbank financial companies.

---------------------------------------------------------------------------

[[Page 20763]]

    The Board recognizes that some investment vehicles may hold shares 
for longer periods as part of a bona fide merchant banking activity 
consistent with the vehicle's investment strategy. For this reason, the 
Council, with respect to the definition of a nonbank financial company 
for purposes of Title I, or the Board, with respect to the definition 
of a significant nonbank financial company, also may determine, on a 
case-by-case basis, that a company that acquires and holds shares for a 
period of time greater than the period permissible for a financial 
holding company is engaged in bona fide merchant banking activities for 
purposes of determining whether the company is predominantly engaged in 
financial activities.
    The prohibition in section 4(k)(4)(H) on routinely managing a 
portfolio company, other than for purposes of recognizing a reasonable 
return on resale or disposition, is an essential element of bona fide 
merchant banking activities. Thus, this prohibition is reflected in the 
appendix. As previously discussed, companies engaging in these 
activities purchase shares of portfolio companies to recognize an 
ultimate profit, rather than to engage in the underlying activity in 
which the portfolio company engages as its primary business activity. 
Routinely managing the companies, other than for the goal of 
recognizing a reasonable return, may indicate a strategic investment in 
the operations of another firm.
    Section 4(k) does not define the statutory prohibition of routinely 
managing a portfolio company. The regulations issued by the Board and 
the Secretary of the Treasury governing the merchant banking activities 
of financial holding companies provide guidance on the statutory 
prohibition of routinely managing a portfolio company in connection 
with a bona fide merchant banking activity. These regulations are 
instructive in determining whether a nonbank company is engaged in bona 
fide merchant banking activities. Therefore, for purposes of 
determining whether a nonbank company is predominantly engaged in 
financial activities under Title I, nonbank companies that comply with 
this guidance regarding the limitations on managing or operating a 
portfolio company will be presumed to be engaged in a bona fide 
merchant banking activity. This presumption will reduce burden on 
companies attempting to determine whether they, or certain of their 
counterparties,\58\ are predominantly engaged in financial activities. 
The Council or the Board, as appropriate, also may determine, on a 
case-by-case basis, that an entity that does not comply with the 
Board's guidance regarding this limitation may still be engaged in a 
bona fide merchant banking activity for purposes of determining whether 
the company is predominantly engaged in financial activities.
---------------------------------------------------------------------------

    \58\ See id.
---------------------------------------------------------------------------

    By contrast, the condition in section 4(k)(4)(H) requiring a 
financial holding company engaging in merchant banking activities to 
have a securities affiliate is not an essential element of bona fide 
merchant banking activities for determining whether these activities 
are financial activities.\59\ This is evidenced by the fact that 
section 4(k) does not require that the securities affiliate participate 
in or play a role with respect to these activities. This condition was 
designed to ensure that only those financial holding companies with 
experience engaging in investment, securities, or advisory activities 
conducted merchant banking activities. Accordingly, this condition is 
not reflected in the appendix.
---------------------------------------------------------------------------

    \59\ The legislative history related to Congress's authorization 
of ``underwriting, merchant, and investment banking activities'' 
distinguishes between the activities themselves and certain 
conditions imposed on the conduct of these activities by a financial 
holding company that do not define the activities, such as the 
requirement that a financial holding company have a securities 
affiliate. See Conf. Rep. 106-434, 154 (November 2, 1999). (``The 
authorization of merchant banking activities as provided in new 
section 4(k)(4)(H) of the BHCA is designed to recognize the 
essential role that these activities play in modern finance and 
permits an FHC that has a securities affiliate or an affiliate of an 
insurance company engaged in underwriting life, accident and health, 
or property and casualty insurance, or providing and issuing 
annuities, to conduct such activities.'') (emphasis added).
---------------------------------------------------------------------------

    Similarly, the condition in section 4(k)(4)(H) requiring that 
shares acquired as part of a bona fide merchant banking activity not be 
acquired or held by a depository institution is not an essential 
element of such activities, and thus is not reflected in the appendix. 
This restriction was imposed because banks are restricted from 
investing in certain types of companies by statute and regulation, and 
in particular, national banks were prohibited by the GLB Act from 
engaging in merchant banking activities through a financial subsidiary 
unless certain findings were made by the Secretary of the Treasury and 
the Board.\60\ The restriction on acquiring or holding investments 
through a depository institution does not define the activity of 
merchant banking but rather imposes conditions on holding the 
investment through one type of corporate affiliate. The condition does 
not define the activity itself, as financial holding companies, which 
have bank affiliates, engage in these activities on a regular basis.
---------------------------------------------------------------------------

    \60\ See, e.g., 12 U.S.C. 24, (Seventh); 12 U.S.C. 24, 
(Eleventh); 12 CFR 1.
---------------------------------------------------------------------------

    Finally, section 4(k)(4)(H) provides that shares acquired in 
connection with a bona fide merchant banking activity must be those of 
a company engaged in an activity not authorized under section 4 of the 
BHC Act. This provision provided new authority for bank holding 
companies that qualify as financial holding companies to engage in 
merchant banking activities with regard to nonbanking firms; bank 
holding companies were already authorized under other provisions of 
section 4 of the BHC Act to invest in firms engaged in financial 
activities.\61\ For this reason, the Board has retained this reference 
to an ``activity not authorized under section 4 of the BHC Act'' in the 
description of bona fide merchant banking activities. An investment in 
a company engaged in activities otherwise permissible under section 4 
would otherwise be treated as a financial activity under section 
4(k)(1) or other provisions of section 4(k). Thus, shares acquired in 
all types of firms in connection with a bona fide merchant banking 
activity are effectively included by section 4(k) within the list of 
permissible financial activities.
---------------------------------------------------------------------------

    \61\ See 65 FR 16460, 16463-16464 (March 28, 2000), in which the 
Board noted that the provision in section 4(k)(4)(H) that authorizes 
a financial holding company to invest in any company engaged in any 
activity not authorized pursuant to section 4 of the BHC Act 
``appears to have been included in recognition of the fact that 
other provisions of the BHC Act permit a financial holding company 
to make investments in companies that conduct financial activities 
without resorting to merchant banking authority.''
---------------------------------------------------------------------------

 Insurance Company Portfolio Investments
    Section 4(k)(4)(I) of the BHC Act authorizes companies engaged in 
certain types of insurance activities to make portfolio investments. In 
particular, financial holding companies are authorized to acquire 
assets or ownership interests, including debt or equity securities, of 
a company or other entity engaged in any activity not

[[Page 20764]]

authorized by section 4(k) if: (i) The shares, assets, or ownership 
interests are not acquired or held by a depository institution or a 
subsidiary of a depository institution; (ii) such shares, assets, or 
ownership interests are acquired and held by an insurance company that 
is predominantly engaged in underwriting life, accident and health, or 
property and casualty insurance (other than credit-related insurance) 
or providing and issuing annuities; (iii) such shares, assets, or 
ownership interests represent an investment made in the ordinary course 
of business of such insurance company in accordance with relevant state 
law governing such investments; and (iv) during the period such shares, 
assets, or ownership interests are held, the bank holding company does 
not routinely manage or operate such company except as may be necessary 
or required to obtain a reasonable return on investment.\62\
---------------------------------------------------------------------------

    \62\ 12 U.S.C. 1843(k)(4)(I).
---------------------------------------------------------------------------

    The conditions in section 4(k)(4)(I) requiring that the shares (i) 
be acquired and held by an insurance company engaged in particular 
activities, (ii) in the ordinary course of business of the acquiring 
insurance company in accordance with relevant state law governing such 
investments, are essential elements of this activity, which was 
authorized by Congress specifically to permit ``an insurance company 
that is affiliated with a depository institution to continue to 
directly or indirectly acquire or control any kind of ownership 
interest in any company,'' in recognition of the fact ``that as part of 
the ordinary course of business, insurance companies frequently invest 
funds received from policyholders by acquiring most or all the shares 
of stock of a company that may not be engaged in a financial 
activity.'' \63\ Thus, these conditions are reflected in the appendix. 
In contrast to merchant banking activities described in section 
4(k)(4)(H), which requires a financial holding company engaging in such 
activities to have a securities affiliate, but does not require that 
the securities affiliate play a role in the activities, section 
4(k)(4)(I) requires that the investment activities authorized 
thereunder be conducted by or through an insurance company.
---------------------------------------------------------------------------

    \63\ See H.R. Rep. No. 106-434 at 154 (1999) (Conf. Rep.) 
(further describing section 4(k)(4)(I) as recognizing that ``these 
investments are made in the ordinary course of business pursuant to 
state insurance laws governing investments by insurance companies, 
and are subject to ongoing review and approval by the applicable 
state regulator'').
---------------------------------------------------------------------------

    The prohibition in section 4(k)(4)(I) on routinely managing a 
portfolio company, other than for purposes of recognizing a reasonable 
return on the investment, is an essential element of the investment 
activities conducted by insurance companies. Thus, this prohibition is 
reflected in the appendix. As noted previously, insurance companies 
typically invest policyholder funds in other companies in the ordinary 
course of business pursuant to state insurance laws. Routinely managing 
the companies, other than for the purpose of recognizing a return on 
investment, may indicate a strategic investment in the operations of 
the other company.\64\
---------------------------------------------------------------------------

    \64\ See id. at 155 (noting that ``to the extent an FHC 
participates in the management or operation of a portfolio company, 
such participation would ordinarily be for the purpose of 
safeguarding the investment of the insurance company in accordance 
with applicable state insurance law. This is irrespective of any 
overlap between board members and officers of the FHC and the 
portfolio company'').
---------------------------------------------------------------------------

    Section 4(k)(4)(I) requires that shares acquired pursuant to an 
insurance company's investment activities not be acquired or held by a 
depository institution. This condition is not an essential element of 
this activity, and, thus, is not reflected in the appendix. The 
restriction on acquiring or holding investments through a depository 
institution does not define the investment activity described in 
section 4(k)(4)(I), but rather imposes conditions on holding the 
investment through one type of corporate affiliate. As discussed 
previously, section 4(k)(4)(I) requires that the investment activities 
authorized thereunder be conducted by or through an insurance company. 
In addition, as noted previously, banks are restricted from investing 
in certain types of companies by statute and regulation.\65\ The 
condition does not define the activity itself, as insurance companies 
affiliated with depository institutions engage in these activities on a 
regular basis.\66\
---------------------------------------------------------------------------

    \65\ See, e.g., 12 U.S.C. 24, (Seventh); 12 U.S.C. 24, 
(Eleventh); 12 CFR part 1.
    \66\ As discussed above, section 4(k)(4)(I) was intended to 
permit ``an insurance company that is affiliated with a depository 
institution to continue to directly or indirectly acquire or control 
any kind of ownership interest in any company if certain 
requirements are met.'' See H.R. Rep. No. 106-434 at 154 (1999) 
(Conf. Rep.).
---------------------------------------------------------------------------

    Finally, as in section 4(k)(4)(H), section 4(k)(4)(I) provides that 
shares acquired by an insurance company in connection with its 
investment activities must be those of a company engaged in an activity 
not authorized under section 4 of the BHC Act. For the same reasons 
described above, the Board has retained this reference to an ``activity 
not authorized under section 4 of the BHC Act'' in the description of 
the investment activities of insurance companies pursuant to section 
4(k)(4)(I). An investment in a company engaged in activities otherwise 
permissible under section 4 would otherwise be treated as a financial 
activity under section 4(k)(1) or other provisions of section 4(k). 
Thus, investments by insurance companies in all types of firms are 
effectively included by section 4(k) within the list of permissible 
financial activities.
 Lending, Exchanging, Transferring, Investing for Others, 
Safeguarding Financial Assets Other Than Money or Securities, and Other 
Activities
    The activities of lending, exchanging, transferring, investing for 
others, or safeguarding financial assets other than money or 
securities; providing any device or other instrumentality for 
transferring money or other financial assets; and arranging, effecting, 
or facilitating financial transactions for the account of third parties 
are financial activities specifically enumerated in section 4(k)(5) of 
the BHC Act.\67\
---------------------------------------------------------------------------

    \67\ 12 U.S.C. 1843(k)(5). The BHC Act requires the Board to 
define the extent to which these activities are financial in nature 
or incidental thereto. The Board and the Secretary of the Treasury 
issued a joint interim rule authorizing such activities as 
permissible for financial holding companies. See 66 FR 257 (January 
3, 2001).
---------------------------------------------------------------------------

ii. Financial Activities That Are Closely Related to Banking
    Section 4(k) provides that ``any activity that the Board has 
determined to be so closely related to banking or managing or 
controlling banks as to be a proper incident thereto'' is a financial 
activity.\68\ These activities are also financial for purposes of 
determining whether a firm is predominantly engaged in financial 
activities under Title I. These activities include the following:
---------------------------------------------------------------------------

    \68\ 12 U.S.C. 1843(k)(4)(F).
---------------------------------------------------------------------------

 Extending Credit and Servicing Loans
    Making, acquiring, brokering, or servicing loans or other 
extensions of credit (including factoring, issuing letters of credit 
and accepting drafts) for the company's account or for the account of 
others were authorized by the Board as activities that are closely 
related to banking.\69\
---------------------------------------------------------------------------

    \69\ 12 U.S.C. 1843(k)(4)(F); 12 CFR 225.28(b)(1). See 62 FR 
9290, 9305 (February 28, 1997), in which the Board noted that 
``[l]ending activities are already broadly defined and contain no 
restrictions.''
---------------------------------------------------------------------------

 Activities Related to Extending Credit
    Activities usual in connection with making, acquiring, brokering, 
or servicing loans or other extensions of credit were authorized by the 
Board as

[[Page 20765]]

activities that are closely related to banking.\70\ These activities 
include performing appraisals of real estate and personal property 
(including securities), acting as an intermediary for commercial or 
industrial real estate financing, providing check guarantee, collection 
agency, and credit bureau services, engaging in asset management, 
servicing, and collection activities, acquiring debt in default, and 
providing real estate settlement services.\71\
---------------------------------------------------------------------------

    \70\ 12 U.S.C. 1843(k)(4)(F); 12 CFR 225.28(b)(2).
    \71\ Id.
---------------------------------------------------------------------------

    The Board's regulations impose certain conditions on the conduct of 
these activities that are not relevant for determining whether these 
activities are considered financial for purposes of determining whether 
a firm is predominantly engaged in financial activities. For instance, 
under the Board's regulations, a bank holding company that is arranging 
financing for commercial or industrial income-producing real estate may 
not have an interest in, participate in managing or developing, or 
promote or sponsor the development of a property for which it is 
arranging financing, or engage in property management or real estate 
brokerage.\72\ These conditions were imposed to clarify that real 
property management and real estate brokerage activities--which were 
not at the time found to be financial activities--are not indirectly 
authorized as permissible for bank holding companies through the 
activity of real estate financing.\73\ As such, the appendix reflects 
the activity of arranging commercial real estate financing without 
reference to the independent activities of owning, managing, 
developing, or promoting or sponsoring development of real estate.\74\ 
While neither real estate brokerage nor real estate management are 
financial activities under section 4(k), a company may engage in these 
activities and still be predominantly engaged in the financial activity 
of arranging commercial real estate financing. Under the final rule, 
only assets and revenues associated with this latter activity are 
considered financial for purposes of determining whether a firm is 
predominantly engaged in financial activities.
---------------------------------------------------------------------------

    \72\ 12 U.S.C. 1843(k)(4)(F); 12 CFR 225.28(b)(2)(ii).
    \73\ The Board first approved the application of a bank holding 
company to engage in real estate equity financing in 1982. In 
approving this activity, the Board noted that it had imposed 
conditions, including that the bank holding company not have an 
interest in, participate in managing or developing, or promote or 
sponsor the development of a property for which it is arranging 
financing, ``to confine the activity * * * to equity financing and 
to prevent [the bank holding company] from engaging in real estate 
development * * * '' See BankAmerica Corporation, 68 Federal Reserve 
Bulletin 647 (1982). The activity of arranging commercial real 
estate equity financing was added to Regulation Y in 1984 and 
incorporated the limitations that the Board had placed on the 
activity in the 1982 order. See 70 Federal Reserve Bulletin 121, 137 
(1984).
    \74\ Neither real estate brokerage nor real estate management is 
an activity that is financial in nature. See 12 U.S.C. 1843 note; 
Public Law 111-8, sec. 624 (Mar. 11, 2009).
---------------------------------------------------------------------------

    Acquiring debt in default also is a financial activity for purposes 
of determining whether a firm is predominantly engaged in financial 
activities under Title I as it is an activity that is usual in 
connection with making, acquiring, brokering, or servicing loans or 
other extensions of credit.\75\ Under the Board's regulations, a bank 
holding company that acquires debt in default must divest assets 
securing the debt that are impermissible for bank holding companies to 
hold within a certain time period, stand only in the position of a 
creditor, not purchase equity of obligors of debt in default, and not 
acquire debt in default secured by shares of a bank or bank holding 
company. These conditions are intended to prevent bank holding 
companies from circumventing the BHC Act and other provisions of law. 
For instance, the condition requiring a bank holding company to divest 
impermissible assets within a certain timeframe was intended to 
distinguish between a bank holding company's acquisition of debt in 
default and its retention of impermissible collateral securing the 
debt.\76\ The conditions requiring the bank holding company to stand 
only in the position of a creditor and not purchase equity of obligors 
of debt in default are intended to prevent a bank holding company from 
acquiring assets in connection with a debt previously contracted the 
ownership of which is prohibited by the BHC Act or other provisions of 
law. These conditions are not related to defining the financial nature 
of the activity of acquiring debt in default.\77\ The condition 
requiring that the debt not be secured by shares of a bank or bank 
holding company was imposed to prevent the bank holding company from 
circumventing the BHC Act's requirement that a bank holding company 
obtain approval from the Board before acquiring control of another bank 
or bank holding company.\78\ For these reasons, these conditions are 
not relevant for determining whether the assets and revenues associated 
with these activities are considered financial for purposes of 
determining whether a firm is predominantly engaged in financial 
activities. The appendix provides that the activity of acquiring debt 
that is in default at the time of acquisition is a financial activity 
for purposes of determining whether a company is predominantly engaged 
in financial activities under Title I without reference to these 
conditions.
---------------------------------------------------------------------------

    \75\ 12 CFR 225.28(b)(2)(vii).
    \76\ See 62 FR 9290, 9305 (February 28, 1997).
    \77\ Id.
    \78\ Id.
---------------------------------------------------------------------------

 Leasing
    Leasing personal or real property, and acting as an agent, broker, 
or adviser for leasing personal or real property were determined to be 
closely related to banking by the Board.\79\ Under the Board's 
regulations, permissible leasing must involve a lease that is on a 
nonoperating basis with an initial term of at least 90 days. In 
addition, leasing involving real property must have the effect of 
yielding a return that will compensate the lessor for not less than the 
lessor's full investment plus the estimated cost of financing the 
property over the term of the lease, and the property must have an 
estimated residual value that is no more than 25 percent of the 
acquisition cost of the property. The conditions serve to distinguish 
between the financial activity of leasing and the nonfinancial 
activities of real or personal property rental and real estate 
management.\80\ As such, the appendix reflects these conditions in 
defining the activities of leasing and acting as an agent, broker, or 
adviser for personal or real property.
---------------------------------------------------------------------------

    \79\ 12 U.S.C. 1843(k)(4)(F); 12 CFR 225.28(b)(3).
    \80\ See 62 FR 9290, 9306 (February 28, 1997) (``These 
requirements were developed in the course of litigation regarding 
the leasing activities of national banks, and were relied on by the 
courts in distinguishing bank leasing activities from general 
property rental and real estate development businesses. The 
requirement that a lease be nonoperating is also a statutory 
requirement limiting the high residual value leasing activities of 
national banks.'')
---------------------------------------------------------------------------

 Operating Nonbank Depository Institutions
    The activity of owning, controlling, and operating depository 
institutions, including industrial banks, Morris Plan banks, industrial 
loan companies and savings associations that do not qualify as 
``banks'' for purposes of the BHC Act was determined to be closely 
related to banking by the Board.\81\ While the Board's regulations 
require that a thrift owned, controlled, or operated by a bank holding 
company be engaged only in deposit-taking activities and activities 
permissible for bank holding companies, the appendix does not include 
these conditions because they are inconsistent with section 102 of the

[[Page 20766]]

Dodd-Frank Act, which provides that all revenues from or assets related 
to the ownership of an insured depository institution shall be 
considered to be financial.
---------------------------------------------------------------------------

    \81\ 12 U.S.C. 1843(k)(4)(F); 12 CFR 225.28(b)(4).
---------------------------------------------------------------------------

 Trust Company Functions
    The activities performed by a trust company (including activities 
of a fiduciary, agency, or custodial nature) that is not a bank for 
purposes of section 2(c) of the BHC Act were determined to be closely 
related to banking by the Board.\82\
---------------------------------------------------------------------------

    \82\ 12 U.S.C. 1843(k)(4)(F); 12 CFR 225.28(b)(5).
---------------------------------------------------------------------------

 Financial and Investment Advisory Activities
    Acting as an investment or financial advisor to any person was 
determined to be closely related to banking by the Board.\83\ The 
activity includes, without limitation, serving as a registered 
investment adviser to a registered investment company, including 
sponsoring, organizing, and managing a closed-end investment company; 
furnishing general economic information and advice, general economic 
statistical forecasting services, and industry studies; providing 
advice in connection with mergers, acquisitions, divestitures, 
investments, joint ventures, leveraged buyouts, recapitalizations, 
capital structurings, financing transactions and similar transactions; 
and conducting financial feasibility studies; providing information, 
statistical forecasting, and advice with respect to any transaction in 
foreign exchange, swaps, and similar transactions, commodities, and any 
forward contract, option, future, option on a future, and similar 
instruments; providing educational courses and instructional materials 
to consumers on individual financial management matters; and providing 
tax-planning and tax-preparation services to any person.\84\
---------------------------------------------------------------------------

    \83\ 12 U.S.C. 1843(k)(4)(F); 12 CFR 225.28(b)(6).
    \84\ Id.
---------------------------------------------------------------------------

 Agency Transactional Services for Customer Investments
    Providing agency transactional services, including providing 
securities brokerage services, acting as a riskless principal, 
providing private placement services, and acting as a futures 
commission merchant were determined to be closely related to banking by 
the Board.\85\
---------------------------------------------------------------------------

    \85\ 12 U.S.C. 1843(k)(4)(F); 12 CFR 225.28(b)(7).
---------------------------------------------------------------------------

    Regulation Y imposes conditions on the manner in which bank holding 
companies may conduct securities brokerage services, act as riskless 
principal, provide private placement services, and act as a futures 
commission merchant. For instance, bank holding companies providing 
securities brokerage services under this authority are limited to 
buying and selling securities solely as agent for the account of 
customers and may not conduct securities underwriting or dealing 
activities. Bank holding companies providing private placement services 
under this authority may not purchase or repurchase for their own 
account the securities being placed or hold in inventory unsold 
portions of issues of those securities. Bank holding companies acting 
as riskless principal under this authority are subject to conditions 
with respect to bank-ineligible securities.
    Each of these conditions was intended to prevent a bank holding 
company from engaging in securities underwriting or dealing activities 
in connection with the activities of securities brokerage, private 
placement, or riskless principal, which were impermissible for bank 
holding companies under the Glass-Steagall Act at the time the 
activities were authorized.\86\ The fact that a firm may retain some 
portion of shares in connection with, for example, private placement 
activities, does not affect or negate the financial nature of private 
placement activities. Moreover, as described elsewhere, securities 
underwriting and dealing activities were subsequently determined by 
statute to be financial activities. Thus, the appendix provides that 
the following activities are financial without the non-definitional 
conditions:
---------------------------------------------------------------------------

    \86\ See 62 FR 9290, 9307-9308 (February 28, 1997).
---------------------------------------------------------------------------

    [cir] Providing securities brokerage services (including securities 
clearing and/or securities execution services on an exchange), whether 
alone or in combination with investment advisory services, and 
incidental activities (including related securities credit activities 
and custodial services).
    [cir] Buying and selling in the secondary market all types of 
securities on the order of customers as a ``riskless principal'' in a 
transaction in which the company purchases (or sells) the security for 
its own account to offset a contemporaneous sale to (or purchase from) 
the customer.
    [cir] Acting as agent for the private placement of securities in 
accordance with the requirements of the Securities Act of 1933 (1933 
Act) and the rules of the Securities and Exchange Commission.
    Under the Board's regulations, a bank holding company acting as a 
futures commission merchant must conduct the activity through a 
separately incorporated subsidiary, the contract must be traded on an 
exchange, and the parent bank holding company may not guarantee that 
subsidiary's liabilities. The appendix does not reflect these 
conditions, as they were imposed for the prudential purpose of limiting 
the transmission of risk from these activities to an insured depository 
affiliate or the parent bank holding company.\87\
---------------------------------------------------------------------------

    \87\ Id. at 9309. (``The Board has determined that a * * * 
restriction that prohibits the parent bank holding company from 
guaranteeing or otherwise becoming liable for non-proprietary trades 
conducted by or through its FCM subsidiary * * * effectively 
addresses the Board's concern about a parent bank holding company's 
exposure to an exchange's or clearinghouse's loss sharing rules * * 
* [by protecting] the parent bank holding company from potential 
exposure from customer trades and open-ended contingent liability 
under loss sharing rules * * *'').
---------------------------------------------------------------------------

    The Board's regulations also contain a broad provision authorizing 
a bank holding company to provide ``transactional services for 
customers involving any derivative or foreign exchange transaction that 
a bank holding company is permitted to conduct for its own account.'' 
\88\ Specifically, the Board's Regulation Y describes the activity as 
``[p]roviding to customers as agent transactional services with respect 
to swaps and similar transactions, any transaction described in 
paragraph (b)(8) of this section, any transaction that is permissible 
for a state member bank, and any other transaction involving a forward 
contract, option, futures, option on a futures or similar contract 
(whether traded on an exchange or not) relating to a commodity that is 
traded on an exchange.'' \89\ In the Second NPR, the Board proposed 
removing the requirement that agent transactional services on certain 
commodity derivatives transactions be provided only with respect to a 
commodity that is traded on an exchange (regardless of whether the 
contract being traded is traded on an exchange) because the limitation 
was imposed for safety and soundness reasons. In light of comments 
received, the Board has determined that

[[Page 20767]]

this condition, while serving a prudential role, also is part of the 
definition of the authorized activity because it prevents a bank 
holding company from engaging in the forward sale of commercial 
products. Because the condition distinguishes the financial activity of 
engaging in derivatives contracts from the commercial sale of assets, 
the final appendix includes this condition.
---------------------------------------------------------------------------

    \88\ Id. at 9310.
    \89\ 12 CFR 225.28(b)(7)(v). The 1997 rulemaking describes this 
financial activity as permitting a bank holding company to ``* * * 
act as a broker with respect to forward contracts based on a 
financial or nonfinancial commodity that also serves as the basis 
for an exchange-traded futures contract. This permits a bank holding 
company to act as agent in a forward contract that involves the same 
commodities and assessment of risk that underlay the permissible FCM 
activities of bank holding companies without extending this 
authority to forward contracts for the delayed sale of commercial 
products (such as automobiles, consumer products, etc.) or real 
estate.'' See 62 FR 9290, 9311 (February 28, 1997).
---------------------------------------------------------------------------

 Investment Transactions as Principal
    Engaging in investment transactions as principal, including 
underwriting and dealing in government obligations and money market 
instruments, investing and trading as principal in foreign exchange and 
derivatives, and buying and selling bullion were determined to be 
closely related to banking by the Board.\90\ Under the Board's 
regulations, bank holding companies engaged in underwriting and dealing 
in government obligations and money market instruments are subject to 
the same limitations as would be applicable if the activity were 
performed by member banks.\91\ The appendix does not reflect this 
limitation because it was intended to prevent circumvention of the 
Glass-Steagall Act. This condition does not define the activity of 
engaging in investment transactions as principal and is therefore not 
relevant for determining whether the activity of underwriting and 
dealing in government obligations and money market instruments is 
financial for purposes of determining whether a firm is predominantly 
engaged in financial activities.\92\
---------------------------------------------------------------------------

    \90\ 12 U.S.C. 1843(k)(4)(F); 12 CFR 225.28(b)(8).
    \91\ 12 CFR 225.28(b)(8)(i).
    \92\ 62 FR 9290, 9311 (February 28, 1997).
---------------------------------------------------------------------------

    Under the Board's regulations, engaging in derivatives transactions 
is a financial activity provided that the derivative contract is not a 
bank-ineligible security, and either the asset underlying the contract 
is a bank permissible asset or the contract contains conditions 
designed to limit the potential that physical settlement would 
occur.\93\
---------------------------------------------------------------------------

    \93\ 12 CFR 225.28(b)(8)(ii)(B).
---------------------------------------------------------------------------

    In the Second NPR, the Board proposed to remove these conditions in 
defining derivatives activities that are financial activities. 
Commenters expressed the view that the conditions requiring cash-
settlement were necessary to distinguish between commercial activities 
involving physically settled derivatives contracts and the types of 
financial derivative activities conducted by financial companies.
    The Board has considered these comments, as well as the Board's 
other precedents, in evaluating whether the conditions relating to 
cash-settlement and assignment or offset are an essential part of the 
definition of the financial activity of engaging in derivatives 
activities. These conditions were imposed by the Board originally to 
reduce the potential that bank holding companies would become involved 
in and bear the risks of physical possession, transport, storage, and 
delivery of commodities and to ensure that the commodity derivatives 
business of a bank holding company is largely limited to acting as a 
financial intermediary in the facilitation of transactions for 
customers who use or produce commodities or are otherwise exposed to 
commodity price risk as part of their regular business.\94\ In certain 
instances, the Board has determined that engaging in physically-
settling commodities, physical commodity trading, energy tolling, and 
energy management services, are activities that are complementary to 
the financial activity of engaging as principal in commodity 
derivatives transactions.\95\ Under section 4(k) of the BHC Act, 
complementary activities are those that, although not necessarily 
financial in nature, are so meaningfully connected to financial 
activities that they complement those financial activities.
---------------------------------------------------------------------------

    \94\ See 68 FR 39807, 39808 (July 3, 2003).
    \95\ See Board letters regarding Bank of America Corporation 
(April 24, 2007), Credit Suisse Group (March 27, 2007), Fortis S.A./
N.V. (September 29, 2006), and Wachovia Corporation (April 13, 
2006); and Board orders regarding Royal Bank of Scotland Group plc, 
94 Federal Reserve Bulletin C60 (2008), Societe Generale, 92 Federal 
Reserve Bulletin C113 (2006), Deutsche Bank AG, 91 Federal Reserve 
Bulletin C54 (2005), JPMorgan Chase & Co., 91 Federal Reserve 
Bulletin C57 (2005); Barclays Bank PLC, 90 Federal Reserve Bulletin 
511 (2004), UBS AG, 90 Federal Reserve Bulletin 215 (2004), and 
Citigroup Inc., 89 Federal Reserve Bulletin 508 (2003).
---------------------------------------------------------------------------

    Based on this review, the Board has determined that these 
conditions, while serving an important prudential role, are also part 
of the definition of the authorized activity because they distinguish 
these derivatives activities from similar derivatives activities that 
are not conducted as a financial intermediary. Thus, the appendix 
includes, as a financial activity for purposes of Title I, engaging as 
principal in forward contracts, options, futures, options on futures, 
swaps, and similar contracts, whether traded on exchanges or not, based 
on any rate, price, financial asset (including gold, silver, platinum, 
palladium, copper, or any other metal), nonfinancial asset, or group of 
assets, other than a bank-ineligible security \96\ if: (i) A state 
member bank is authorized to invest in the asset underlying the 
contract; \97\ (ii) the contract requires cash settlement; (iii) the 
contract allows for assignment, termination, or offset prior to 
delivery or expiration, and the company makes every reasonable effort 
to avoid taking or making delivery of the asset underlying the 
contract, or receives and instantaneously transfers title to the 
underlying asset, by operation of contract and without taking or making 
physical delivery of the asset; or (iv) the contract does not allow for 
assignment, termination, or offset prior to delivery or expiration and 
is based on an asset for which futures contracts or options on futures 
contracts have been approved for trading on a U.S. contract market by 
the Commodity Futures Trading Commission, and the company makes every 
reasonable effort to avoid taking or making delivery of the asset 
underlying the contract, or receives and instantaneously transfers 
title to the underlying asset, by operation of contract and without 
taking or making physical delivery of the asset.
---------------------------------------------------------------------------

    \96\ The Board's Regulation Y provides that a bank-ineligible 
security is any security that a state member bank is not permitted 
to underwrite or deal in under 12 U.S.C. 24 and 335.
    \97\ State member banks may own, for example, investment grade 
corporate debt securities, U.S. government and municipal securities, 
foreign exchange, and certain precious metals. See 68 FR 39807, 
39808, note 2 (July 3, 2003).
---------------------------------------------------------------------------

    Similarly, engaging as principal in forward contracts, options, 
futures, options on futures, swaps, and similar contracts, whether 
traded on exchanges or not, based on an index of a rate, a price, or 
the value of any financial asset, nonfinancial asset, or group of 
assets, is a financial activity only if the contract requires cash 
settlement.
    Investing and trading in foreign exchange is a financial activity 
under the Board's regulations.
    The Board also received a comment in response to the Second NPR 
requesting that the Board clarify that derivatives transactions would 
not be considered ``financial'' with respect to a commercial 
manufacturer, producer, shipper, energy, or commodity firm when they 
are incidental or ancillary to a party's activities as such. Under the 
Dodd-Frank Act, whether an activity is ``financial'' is determined by 
the nature of the activity, rather than by what type of firm conducts 
the activity. Thus, the Board did not amend the appendix to the final 
rule in this manner.

[[Page 20768]]

 Management Consulting and Counseling Activities
    The Board has authorized management consulting as a permissible 
activity under several different authorities, each of which are 
encompassed within the cross-references contained in section 4(k) of 
the BHC Act. Providing management consulting advice on any matter to 
unaffiliated depository institutions and on any financial, economic, 
accounting, or audit matter to any other company (``financial 
management consulting services'') was determined to be closely related 
to banking by the Board.\98\ Under the Board's regulations, bank 
holding companies that engage in financial management consulting 
services also are permitted to provide management consulting services 
generally to any company other than an unaffiliated depository 
institution, on any non-financial matter (``non-financial management 
consulting services''), provided at least 70 percent of the bank 
holding company's total annual revenue derived from all management 
consulting services is derived from financial management consulting 
services. The revenue limitation on providing non-financial management 
consulting services was designed to limit the involvement of bank 
holding companies in the provision of management consulting services on 
non-financial matters to nondepository institutions. The limitations on 
the authority of bank holding companies to provide non-financial 
management consulting services does not change the nature of the 
permissible financial management consulting services done within those 
limits.
---------------------------------------------------------------------------

    \98\ 12 U.S.C. 1843(k)(4)(F); 12 CFR 225.28(b)(9)(i). The 
Board's regulations provide that in conducting management consulting 
advice, bank holding companies are not authorized to perform tasks 
or operations or provide services to client institutions either on a 
daily or continuing basis, except as necessary to instruct the 
client institution on how to perform such services for itself. This 
restriction was designed to limit a bank holding company's 
activities to providing advice rather than other services that may 
involve impermissible activities for bank holding companies. For 
purposes of Title I, assets and revenues derived from providing 
management consulting services to a depository institution and any 
consulting on financial, economic, accounting, or audit matters to 
any company, will be considered financial regardless of other 
services the firm might provide. See 12 CFR 225.28(b)(9)(i), note 
11.
---------------------------------------------------------------------------

    For purposes of applying the asset and revenue tests under Title I, 
assets and revenues derived from or associated with any management 
consulting services to a depository institution and any consulting on 
financial, economic, accounting, or audit matters to any company, will 
be considered financial. In addition, because a bank holding company 
may derive up to 30 percent of its total annual revenue from non-
financial management consulting services and still be considered to be 
engaged in financial management consulting activities under the Board's 
regulations, for purposes of the applying the asset and revenue tests 
under Title I, up to 30 percent of a nonbank company's assets or 
revenues related to non-financial management consulting services will 
be included in the company's financial assets or revenues.
    The Board's regulations also prohibit a bank holding company 
providing financial management consulting services from owning or 
controlling more than 5 percent of the voting securities of a client 
institution or from having a management interlock.\99\ These conditions 
were intended to ensure that a bank holding company does not 
effectively exercise control over a client company with which it has a 
management consulting contract, thereby circumventing the prohibitions 
and notice requirements applicable to bank holding companies seeking to 
acquire a controlling interest in a company engaged in nonbanking 
activities, and to prevent conflicts of interest.\100\ However, the 
Board believes that these conditions also serve a definitional role to 
distinguish management consulting from the actual conduct of the 
commercial activity in which a client firm is engaged.
---------------------------------------------------------------------------

    \99\ See id. See also 62 FR 9290, 9304, 9312 (February 28, 
1997).
    \100\ See 62 FR 9290, 9304, 9312 (February 28, 1997).
---------------------------------------------------------------------------

    The authorization for these activities overlaps with, and is 
largely subsumed under, the broader authority to engage in management 
consulting services that was determined to be usual in connection with 
banking abroad, described below. Therefore, a company that engages in 
management consulting activities in a manner that does not comply with 
the conditions described above will be considered to be engaged in a 
financial activity if its management consulting activities are captured 
by the broader authority.
    Providing employee benefits consulting services to employee 
benefit, compensation and insurance plans, including designing plans, 
assisting in the implementation of plans, providing administrative 
services to plans, and developing employee communication programs for 
plans was determined to be closely related to banking by the 
Board.\101\ Providing career counseling services also was determined to 
be closely related to banking by the Board,\102\ subject to the 
condition that the services must be provided to a financial 
organization and individuals currently employed by, or recently 
displaced from, a financial organization; to individuals who are 
seeking employment at a financial organization; or to individuals 
currently employed in or who are seeking positions in the finance, 
accounting, and audit departments of any company. These conditions are 
essential to this activity's being considered financial, and thus, this 
activity is included in the appendix with these conditions.
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    \101\ 12 U.S.C. 1843(k)(4)(F); 12 CFR 225.28(b)(9)(ii).
    \102\ 12 U.S.C. 1843(k)(4)(F); 12 CFR 225.28(b)(9)(iii).
---------------------------------------------------------------------------

 Courier Services and Printing and Selling MICR-encoded Items
    The activity of providing courier services for: (i) Checks, 
commercial papers, documents, and written instruments (excluding 
currency or bearer-type negotiable instruments) that are exchanged 
among banks and financial institutions, and (ii) audit and accounting 
media of a banking or financial nature and other business records and 
documents used in processing such media was determined to be closely 
related to banking by the Board.\103\
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    \103\ 12 U.S.C. 1843(k)(4)(F); 12 CFR 225.28(b)(10)(i).
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    The activity of printing and selling checks and related documents, 
including corporate image checks, cash tickets, voucher checks, deposit 
slips, savings withdrawal packages, and other forms that require 
Magnetic Ink Character Recognition encoding also was determined to be 
closely related to banking by the Board.\104\
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    \104\ 12 U.S.C. 1843(k)(4)(F); 12 CFR 225.28(b)(10)(ii).
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 Insurance Agency and Underwriting
    Certain insurance activities, including activities related to the 
provision of credit insurance and insurance in small towns, were 
determined to be closely related to banking by the Board.\105\ Under 
the Board's regulations, bank holding companies may engage in these 
activities, subject to various conditions and limitations, which are 
reflected in the appendix. However, the authorization for these 
activities overlaps with, and is largely subsumed under, the general 
authority to engage in insurance underwriting and insurance agency 
activities discussed above. Therefore, a company that engages in 
insurance activities in a manner that does not comply with the 
conditions described above will be considered to be

[[Page 20769]]

engaged in a financial activity if its insurance activities are 
captured by the general authority.
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    \105\ 12 U.S.C. 1843(k)(4)(F); 12 CFR 225.28(b)(11).
---------------------------------------------------------------------------

 Community Development Activities
    The activities of making debt and equity investments in 
corporations or projects that are designed primarily to promote 
community welfare, and providing advisory and related services for such 
programs was determined to be closely related to banking by the 
Board.\106\
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    \106\ 12 U.S.C. 1843(k)(4)(F); 12 CFR 225.28(b)(12).
---------------------------------------------------------------------------

 Money Orders, Savings Bonds, and Traveler's Checks
    Issuing and selling money orders and similar consumer-type payment 
instruments, selling U.S. savings bonds, and issuing traveler's checks 
were determined to be closely related to banking by the Board.\107\
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    \107\ 12 U.S.C. 1843(k)(4)(F); 12 CFR 225.28(b)(13).
---------------------------------------------------------------------------

 Data Processing
    Providing data processing services and related activities with 
respect to financial, banking, or economic data was determined to be 
closely related to banking by the Board.\108\ Under the Board's 
regulations, a bank holding company's data processing activities must 
comply with the conditions that the hardware provided in connection 
with these services be offered only in conjunction with software 
related to the processing, storage, and transmission of financial, 
banking, or economic data, and all general purpose hardware provided 
with financial software not constitute more than 30 percent of the cost 
of any packaged offering.
---------------------------------------------------------------------------

    \108\ 12 U.S.C. 1843(k)(4)(F); 12 CFR 225.28(b)(14).
---------------------------------------------------------------------------

    The restrictions on providing hardware as part of providing 
financial data processing services were designed to limit the 
involvement of bank holding companies in the sale of data processing 
hardware, in particular, the sale of general purpose hardware. The 
limitations on the authority of bank holding companies to provide 
hardware as part of financial data processing do not change the nature 
of the permissible financial data processing done within those limits. 
For purposes of applying the asset and revenue tests under Title I, 
only that portion of a firm's data processing that involves providing 
financial data processing along with related hardware up to the limits 
imposed on bank holding companies would be considered financial 
activities. The provision of hardware or nonfinancial data processing 
beyond those limits would not disqualify the financial data processing 
revenues or assets, but also would not be considered financial 
activities.
 Mutual Fund Administrative Services
    Providing administrative and other services to mutual funds was 
determined be closely related to banking by the Board.\109\
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    \109\ 12 U.S.C. 1843(k)(4)(F); 12 CFR 225.86(a)(2)(i).
---------------------------------------------------------------------------

 Owning Shares of a Securities Exchange
    Owning shares of a securities exchange was determined to be closely 
related to banking by the Board.\110\
---------------------------------------------------------------------------

    \110\ 12 U.S.C. 1843(k)(4)(F); 12 CFR 225.86(a)(2)(ii).
---------------------------------------------------------------------------

 Certification Services
    Acting as a certification authority for digital signatures and 
authenticating the identity of persons conducting financial and 
nonfinancial transactions was determined to be closely related to 
banking by the Board.\111\
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    \111\ 12 U.S.C. 1843(k)(4)(F); 12 CFR 225.86(a)(2)(iii).
---------------------------------------------------------------------------

 Providing Employment Histories
    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 was determined to be closely 
related to banking by the Board.\112\
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    \112\ 12 U.S.C. 1843(k)(4)(F); 12 CFR 225.86(a)(2)(iv).
---------------------------------------------------------------------------

 Check-Cashing and Wire-Transmission Services
    Providing check-cashing and wire-transmission services was 
determined to be closely related to banking by the Board.\113\
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    \113\ 12 U.S.C. 1843(k)(4)(F); 12 CFR 225.86(a)(2)(v).
---------------------------------------------------------------------------

 Postage, Vehicle Registration, Public Transportation Services
    The activities of providing notary-public services, selling postage 
stamps and postage-paid envelopes, providing vehicle registration 
services, and selling public-transportation tickets and tokens, when 
offered in connection with banking services, were determined to be 
closely related to banking by the Board.\114\
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    \114\ 12 U.S.C. 1843(k)(4)(F); 12 CFR 225.86(a)(2)(vi).
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 Real Estate Title Abstracting
    Engaging in real estate title abstracting was determined to be 
closely related to banking by the Board.\115\
---------------------------------------------------------------------------

    \115\ 12 U.S.C. 1843(k)(4)(F); 12 CFR 225.86(a)(2)(vii).
---------------------------------------------------------------------------

iii. Financial Activities That are Usual in Connection With Banking or 
Other Financial Operations Abroad
    Section 4(k) defines as a financial activity ``engaging, in the 
United States, in any activity that: (i) A bank holding company may 
engage in outside of the United States; and (ii) the Board has 
determined pursuant to section 4(c)(13) of the BHC Act to be usual in 
connection with the transaction of banking or other financial 
operations abroad.'' \116\ These activities are described below.
---------------------------------------------------------------------------

    \116\ 12 U.S.C. 1843(k)(4)(G).
---------------------------------------------------------------------------

 Management Consulting Services
    As noted previously, the Board has authorized management consulting 
as a permissible activity under several different authorities contained 
in the cross-references in section 4(k) of the BHC Act. In addition to 
finding that management consulting services are closely related to 
banking for purposes of section 4(c)(8) of the BHC Act, described 
above, the Board also determined that providing management consulting 
services is usual in connection with the transaction of banking or 
other financial operations abroad under section 4(c)(13) of the BHC 
Act.\117\ Under the Board's regulations, a bank holding company may 
provide 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.'' \118\
---------------------------------------------------------------------------

    \117\ 12 U.S.C. 1843(k)(4)(G); 12 CFR 225.86(b)(1).
    \118\ 12 CFR 225.86(b)(1).
---------------------------------------------------------------------------

    In the second NPR, the Board proposed to define this financial 
activity without regard to the condition that the bank holding company 
not control a client firm because this condition was imposed to prevent 
bank holding companies from circumventing the prohibitions and approval 
requirements in the BHC Act and to prevent conflicts of interest, as 
described previously. However, the Board believes that this condition 
also serves a definitional role to distinguish management consulting 
from the actual conduct of the activities in which a client firm is 
engaged, which may be commercial in nature. Therefore, the Board has 
restored this condition to the definition of management consulting 
activities that will be considered financial for purposes of Title I.
 Travel Agency
    Operating a travel agency in connection with providing financial

[[Page 20770]]

services was determined to be usual in connection with the transaction 
of banking or other financial operations abroad.\119\ This activity 
could be conducted in connection with any of the financial activities 
listed in this appendix, such as, for example, engaging in credit card 
activities.\120\
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    \119\ 12 U.S.C. 1843(k)(4)(G); 12 CFR 225.86(b)(2).
    \120\ See 48 FR 56932, 56933 (December 27, 1983).
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 Mutual Fund Activities
    Organizing, sponsoring, and managing a mutual fund was determined 
to be usual in connection with the transaction of banking or other 
financial operations abroad.\121\ This activity is in addition to, and 
in some ways includes, the financial activity of providing 
administrative services to mutual funds discussed above. Under the 
Board's regulations, bank holding companies are prohibited from 
exerting managerial control over the companies in which the mutual fund 
invests and must reduce their ownership to less than 25 percent of the 
equity of the mutual fund within one year of sponsoring the fund. These 
conditions do not define the essential nature of organizing, 
sponsoring, or managing a mutual fund. Rather, they were imposed to 
prevent circumvention of the investment restrictions in the BHC 
Act.\122\ Therefore, they are not reflected in the appendix.
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    \121\ 12 U.S.C. 1843(k)(4)(G); 12 CFR 225.86(b)(3).
    \122\ Furthermore, the Board's regulations governing a financial 
holding company's merchant banking activities authorizes the 
financial holding company to own all of the voting shares of a fund, 
but no more than 25 percent of the equity of the fund, which 
demonstrates that section 4(k) authorizes financial holding 
companies to control funds. The limitation on a financial holding 
company's equity interest in a fund was a prudential limitation 
imposed to limit the potential losses to which the financial holding 
company may be exposed.
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 Commercial Banking Activities
    Engaging in commercial banking and other banking activities was 
determined to be usual in connection with the transaction of banking or 
other financial operations abroad.\123\ Commercial banking activities 
include the ownership of a bank, as well as engaging in activities and 
making investments permissible for a bank.\124\ The purchase of 
liquidity instruments, such as U.S. government securities, is an 
activity that is permissible for a bank. Some commenters had suggested 
that assets such as liquidity instruments not be included in a 
company's financial revenues or assets for purposes of determining 
whether the company is predominantly engaged in financial activities. 
However, investing in bank permissible investments is intrinsic to 
commercial banking. Therefore, a nonbank company's purchase of 
liquidity instruments would be included in the company's financial 
revenues and assets.
---------------------------------------------------------------------------

    \123\ 12 CFR 211.10(a)(1).
    \124\ The Board's regulations implementing section 4(k) of the 
BHC Act do not include this activity because the regulations were 
intended to identify the activities that may be conducted using the 
post-transaction notice procedures. In the preamble to the final 
rule implementing section 4(k), the Board expressed the view that 
``the GLB Act did not authorize a financial holding company to 
conduct commercial and other banking activities in the United States 
by using the post-transaction notice procedure.'' 66 FR 400, 405 
(January 3, 2001). The fact that post-transaction notice procedures 
are not available for commercial or other banking activities does 
not impact the conclusion that engaging in commercial and other 
banking activities is a financial activity for purposes of 
determining whether a firm is predominantly engaged in financial 
activities under Title I.
---------------------------------------------------------------------------

c. Implications for Bank Holding Companies
    As noted in the Second NPR, the activities listed in the appendix 
would be defined as financial solely for purposes of Title I of the 
Dodd-Frank Act. The appendix is not intended to amend section 4(k) of 
the BHC Act for purposes of defining those activities that are 
permissible for financial holding companies or the manner in which bank 
holding companies and financial holding companies are permitted to 
conduct those activities.
d. Other Activities
    As described above, section 4(k) of the BHC Act authorizes the 
Board, in consultation with the Secretary of the Treasury, to determine 
in the future that additional activities are ``financial in nature.'' 
\125\ One commenter contended that the universe of financial activities 
that should be included when calculating either the revenue or asset 
test should be frozen as of the date on which the Dodd-Frank Act was 
passed and should not include additional activities that the Board, in 
consultation with the Secretary of the Treasury, determines in the 
future to be ``financial in nature.''
---------------------------------------------------------------------------

    \125\ See 12 U.S.C. 1843(k)(1)-(k)(3).
---------------------------------------------------------------------------

    The Board has considered this comment and believes that the 
language of section 102 of the Dodd-Frank Act is best read as providing 
that any activities that are considered to be ``financial in nature'' 
at the time a company is considered under the asset or revenue test to 
determine whether such company is predominantly engaged in financial 
activities, should be included in such calculation.
    Section 102 specifically provides that an activity that is 
``financial in nature'' as defined in section 4(k) of the BHC Act, 
shall be considered to be a financial activity for purposes of 
determining whether a company is predominantly engaged in financial 
activities. The definition of financial activities under section 4(k) 
is not static, and, under the terms of section 4(k), may be expanded. 
In light of the evolving nature of financial markets and companies, the 
inclusion of all activities that are considered to be financial at the 
time the determination is made ensures that the definition of 
``financial activities'' for purposes of the designation process 
accurately reflects that evolution. This interpretation also is 
consistent with the statutory process that requires the Council to 
revisit designation decisions at least annually. This provision of the 
statute contemplates that a company's status as a ``nonbank financial 
company'' would not remain static, but would be reevaluated at 
different times in the future. This requirement to revisit designation 
decisions indicates that Congress foresaw that the mix of financial and 
nonfinancial activities conducted by companies could change over time. 
A company's mix of financial and nonfinancial activities could change 
in the future for various reasons, including a determination by the 
Board and the Secretary of the Treasury, that additional activities 
should be considered to be financial in nature under section 4(k).
    In addition, the Board believes that this interpretation is 
consistent with the Council's duties under section 112 of the Dodd-
Frank Act, which include monitoring the financial services marketplace 
to identify potential threats to the financial stability of the United 
States and providing a forum for discussion and analysis of emerging 
market developments and financial regulatory issues. The Council's 
duties and authorities contemplate that the Council will stay abreast 
of the evolving nature of financial activities, markets, and companies. 
The inclusion of all activities that are considered to be financial at 
the time the determination is made helps ensure that the Council 
fulfills its statutory duties, authorities, and purposes, including its 
authority to consider any company that is predominantly engaged in 
financial activities that could pose a threat to U.S. financial 
stability for designation. The Board, as appropriate, will, on a case-
by-case basis, provide assistance to companies in determining whether a 
particular activity is financial in nature for purposes of Title 
I.\126\
---------------------------------------------------------------------------

    \126\ The First NPR proposed a formal procedure under which a 
company could request that the Board determine whether a particular 
activity is financial in nature for purposes of Title I, which was 
substantially similar to the procedure outlined in Sec.  225.88 of 
the Board's Regulation Y under which a financial holding company or 
other interested entity may request a determination from the Board 
that an activity is financial in nature or incidental to a financial 
activity. The final rule contemplates that the Board and Council, as 
appropriate, will help companies determine whether the company is 
predominantly engaged in financial activities. As part of this 
process, the Board expects to provide assistance to companies 
attempting to determine whether a particular activity is financial, 
as appropriate, consistent with the Board's interpretive authority 
under the BHC Act and its authority under section 102(a)(6) of the 
Dodd-Frank Act. Therefore, the Board has determined that it is 
unnecessary to include in the final rule a formal procedure under 
which a company may request that the Board determine whether a 
particular activity is financial in nature.

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[[Page 20771]]

3. Equity Investments in Unconsolidated Entities
    The First NPR included two rules of construction governing the 
application of the two-year test to revenues and assets attributable to 
a company's minority equity investments in unconsolidated entities. 
Under the first proposed rule of construction, the Board proposed to 
attribute to a company all revenues derived from, and assets related 
to, the company's equity investment in any unconsolidated company that 
itself is predominantly engaged in financial activities.\127\ This rule 
of construction would have required companies to determine whether 85 
percent or more of an investee company's revenues or assets were 
attributable to financial activities for purposes of determining 
whether to treat revenues and assets related to unconsolidated minority 
investments as financial. Under the second rule of construction, the 
Board proposed to permit (but not require) a company to treat as 
nonfinancial the revenues and assets attributable to a limited amount 
of de minimis equity investments in unconsolidated companies without 
having to separately determine whether the investee company is itself 
predominantly engaged in financial activities.\128\
---------------------------------------------------------------------------

    \127\ See Sec.  225.301(e)(1) of the First NPR.
    \128\ See Sec.  225.301(e)(2) of the First NPR.
---------------------------------------------------------------------------

First Rule of Construction: Unconsolidated Investments
    Several commenters asserted that a company's minority equity 
investments in an unconsolidated company should not be included in a 
company's financial revenues or assets when determining whether such 
company is predominantly engaged in financial activities unless the 
investment was made in connection with a merchant banking investment as 
defined in section 4(k) of the BHC Act or was made in a subsidiary of 
the company. Some commenters expressed the view that requiring a 
company to determine whether unconsolidated investee companies are 
themselves predominantly engaged in financial activities would be 
unduly burdensome.
    In light of the comments, the Board has eliminated the requirement 
that a company determine whether an unconsolidated company in which it 
has made an investment is predominantly engaged in financial 
activities. Rather, the Board has amended the final rule to provide 
that an investment in an unconsolidated company will be presumed to be 
made in the course of conducting a financial activity set forth in 
section 4(k). In the Board's experience, this presumption is 
appropriate because most companies that derive a significant portion of 
revenue from, or have significant assets related to, investments in 
unconsolidated companies (such as hedge funds, private equity funds, or 
mutual funds) generally hold those investments for purposes of resale 
in connection with a bona fide merchant or investment banking activity 
as set forth in section 4(k)(4)(H), make those investments in 
connection with the activity of investing for others as defined in 
section 4(k)(4)(A), or invest in companies engaged in financial 
activities as provided for in section 4(k)(1). This presumption will 
reduce burden on companies by allowing them to determine whether they 
are predominantly engaged in financial activities without having to 
determine whether an unconsolidated company in which it has invested is 
itself predominantly engaged in financial activities.\129\ In addition, 
this presumption will reduce burden on companies that are required to 
report their credit exposure to significant bank holding companies and 
significant nonbank financial companies under section 165(d) of the 
Dodd-Frank Act, which requires companies subject to this reporting 
obligation to identify companies that are predominantly engaged in 
financial activities, and thus, nonbank financial companies.
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    \129\ Unless this presumption is rebutted, a nonbank company's 
investment income, including the company's proportionate share of 
earnings associated with an investment accounted for under the 
equity method, and dividend income from investments in 
unconsolidated companies will be included in the company's financial 
revenues for purposes of the revenue test.
---------------------------------------------------------------------------

    However, the Board recognizes that the presumption will not be 
appropriate in all instances, such as when a company holds an 
investment in a supplier in order to manage its supply chain more 
efficiently, to otherwise integrate various aspects of the company's 
business, or as a joint venture to engage in a business related to the 
company's primary business, among other possibilities. Accordingly, a 
company may rebut the presumption that an investment in a particular 
unconsolidated company is related to a financial activity by providing 
evidence to the Council, with respect to the definition of a nonbank 
financial company for purposes of Title I (other than with respect to 
the definition of a significant nonbank financial company), or the 
Board, with respect to the definition of a significant nonbank 
financial company, that the investment is not a merchant banking 
investment, an investment for others, an investment in a company 
engaged in activities that are financial in nature, or is not otherwise 
related to a financial activity. The Council or the Board, as 
appropriate, will consider this evidence on a case-by-case basis to 
determine whether the revenues derived from, or the assets related to, 
a company's investment in an unconsolidated company should be 
considered to be financial revenues or assets of the company.
    The Board also has amended the first rule of construction to 
clarify that it would apply to a nonbank company's investment in an 
unconsolidated company, regardless of whether this investment would 
constitute a ``minority'' investment under applicable accounting 
standards. This amendment is intended to address circumstances in which 
an investor holds more than a majority of an investee company's voting 
shares but has granted substantive participating rights or similar 
rights to minority shareholders and, therefore, does not have a 
controlling financial interest under applicable accounting standards.
Second Rule of Construction: De Minimis Investments
    As noted above, the first NPR contained a second rule of 
construction that would permit (but not require) a company to treat as 
nonfinancial the revenues and assets attributable to investments in 
unconsolidated companies representing less than five percent of any 
class of outstanding voting shares, and less than 25 percent of the 
total equity, of the unconsolidated company without having to 
separately determine whether those companies are themselves 
predominantly engaged in financial activities.\130\ This rule of 
construction was subject to several conditions designed to limit the

[[Page 20772]]

potential for these de minimis investments to substantially alter the 
financial character of the activities of a company.\131\
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    \130\ See Sec.  225.301(e)(2) of the First NPR.
    \131\ Specifically, this rule of construction provided that a 
company may treat revenues derived from, or assets related to, an 
equity investment by the company in an investee company as revenues 
or assets not derived from, or related to, activities that are 
financial in nature (regardless of the type of activities conducted 
by the other company), if (i) the company owns less than five 
percent of any class of outstanding voting shares, and less than 25 
percent of the total equity, of the investee company; (ii) the 
financial statements of the investee company are not consolidated 
with those of the company under applicable accounting standards; 
(iii) the company's investment in the investee company is not held 
in connection with the conduct of any financial activity (such as, 
for example, investment advisory activities or merchant banking 
investment activities) by the company or any of its subsidiaries; 
(iv) the investee company is not a bank, bank holding company, 
broker-dealer, insurance company, or other regulated financial 
institution; and (v) the aggregate amount of revenues or assets 
treated as nonfinancial under the rule of construction in any year 
does not exceed five percent of the company's annual gross financial 
revenues or consolidated total financial assets of the company.
---------------------------------------------------------------------------

    In light of the rebuttable presumption discussed above, which 
provides that the Board will presume that a company's investments in 
unconsolidated companies are financial as either a merchant banking 
investment under section 4(k)(4)(H), an investment made for others 
under section 4(k)(4)(A), or an investment in a company engaged in 
activities that are financial in nature under section 4(k)(1), and the 
company's ability to rebut the presumption in consultation with the 
Board, the second rule of construction is no longer necessary. The 
Council or the Board as appropriate, will, on a case-by-case basis, 
consider whether a particular investment is related to an activity that 
is financial in nature as defined in section 4(k), including 
investments representing less than five percent of any class of the 
unconsolidated investee company's outstanding voting shares, and less 
than 25 percent of the unconsolidated investee company's total equity.
4. Characterization of Internal Financial Activities and Certain Assets
    Several commenters requested that the Board clarify whether 
revenues derived from, or assets related to, internal financial 
activities should be included as financial revenues or assets when 
determining whether a company is predominantly engaged in financial 
activities.
    As the Board explained in the First NPR, the definition of 
financial activities includes all activities that have been, or may be, 
determined to be ``financial in nature'' under section 4(k) regardless 
of where the activity is conducted by a company or whether the company 
is conducting the activity on an internal or inter-affiliate basis or 
with a third-party. This view is consistent with the language of the 
Dodd-Frank Act. Section 102(a)(6) does not distinguish between 
financial activities conducted internally or those conducted with third 
parties. This is in sharp contrast to the specific terms of sections 
113(c) and 167(b) of the Dodd-Frank Act, which provide that the Board 
may require a nonbank financial company to conduct its financial 
activities in an intermediate holding company ``other than'' internal 
financial activities, including internal treasury, investment, and 
employee benefit functions.\132\ The absence of such an exclusion in 
section 102(a)(6) indicates that Congress intended that internal 
financial activities be included for purposes of determining whether a 
company is predominantly engaged in financial activities as defined in 
section 102(a)(6).
---------------------------------------------------------------------------

    \132\ 12 U.S.C. 5323(c) and 5367(b). See also section 626 of the 
Dodd-Frank Act; 12 U.S.C. 1467b.
---------------------------------------------------------------------------

    In addition, some commenters requested that the Board clarify that 
particular assets, such as cash, goodwill and other intangibles, and 
accounts receivable that relate to the company's financing a non-
financial activity or product, are not included in a company's assets 
related to financial activities for purposes of determining whether the 
company is predominantly engaged in financial activities.
    The Dodd-Frank Act compares assets related to financial activities 
to a firm's total assets. Cash on hand is not easily mapped to or 
necessarily used to fund a particular financial activity. Moreover, 
while a firm may be able to trace the generation of cash to a 
particular activity internally, the Dodd-Frank Act also contemplates 
that third parties be able to determine whether a firm is predominantly 
engaged in financial activities.\133\ Third parties are not privy to 
the type of internal documentation that would allow them to assess 
whether cash is related to a particular financial activity. 
Consequently, the final rule excludes cash from a company's 
consolidated total assets and consolidated total financial assets for 
purposes of determining whether a company is predominantly engaged in 
financial activities under the asset test. However, inflows of cash 
generally may be attributed to particular activities for purposes of 
the revenue test in the Dodd-Frank Act using the company's cash flow 
statement. Thus, all revenues, including cash, that are derived from 
financial activities must be included in the revenue test.
---------------------------------------------------------------------------

    \133\ As previously discussed, section 165(d)(2) of the Dodd-
Frank Act requires nonbank financial companies supervised by the 
Board and bank holding companies and foreign banks treated as bank 
holding companies with $50 billion or more in assets to report their 
credit exposure to significant nonbank financial companies and bank 
holding companies, which requires companies subject to this 
reporting obligation be identify those companies that are 
predominantly engaged in financial activities, and thus, nonbank 
financial companies.
---------------------------------------------------------------------------

    Holdings of cash equivalents represent investments and are, 
therefore, related to the financial activity of making bank-permissible 
investments. Therefore, cash equivalents are assets related to a 
financial activity for purposes of the asset test.
    Intangible assets generally may be attributed to a particular 
activity. Accordingly, the final rule treats each intangible asset in 
the same manner as the transaction or asset that gives rise to the 
intangible asset. An intangible asset is a financial asset of the 
company for purposes of the asset test only to the extent that it is 
related to the conduct of a financial activity. For example, mortgage 
servicing rights generate an intangible asset derived from an activity 
determined to be financial under section 4(k) of the BHC Act. On the 
other hand, goodwill, which is generally recognized as an intangible 
asset, is generated when a company makes an acquisition at a premium 
over the fair value of the asset acquired. The final rule allows 
exclusion of goodwill from the company's consolidated total assets and 
consolidated total financial assets for purposes of determining whether 
a company is predominantly engaged in financial activities under the 
asset test.
    Accounts receivable may, in some cases, be related to the financial 
activity of extending credit, such as when the firm charges the 
customer interest over a term in exchange for the credit after a 
product or service is delivered. In other cases, a company's accounts 
receivable may simply reflect an agreement to accept payment from 
customers on a specified date for the company's goods and services. In 
those instances, the company may simply have provided its customers an 
accommodation to provide payment by a certain date with no credit terms 
such as interest. Because accounts receivable may in some cases reflect 
a company's extensions of credit, the Board has determined that it is 
most appropriate to treat accounts receivable as related to a financial 
activity unless a company rebuts this presumption by providing evidence 
to the Council, with respect to the definition of a nonbank financial 
company for purposes of Title I (other

[[Page 20773]]

than with respect to the definition of a significant nonbank financial 
company), or the Board, with respect to the definition of a significant 
nonbank financial company, that the receivable is not related to 
extending credit. As is the case with respect to the other presumptions 
adopted by the Board in this rulemaking, this presumption will help 
companies determine whether they are predominantly engaged in financial 
activities and will reduce burden on companies that are required to 
report their credit exposure to significant nonbank financial companies 
under section 165(d) of the Dodd-Frank. A company may rebut this 
presumption by providing evidence to the Council or the Board that the 
receivable is not related to extending credit, and the evidence will be 
considered on a case-by-case basis to determine whether the receivable 
should be considered to be related to a financial activity.
    As noted previously, the Board recognizes that determining whether 
and the extent to which particular revenues or assets are related to 
financial activities may be a complex endeavor, and the Council and the 
Board, as appropriate, will assist companies on a case-by-case basis 
that require assistance in determining whether the company is 
predominantly engaged in financial activities.
5. Appropriate Accounting Standards
    Under the two-year test set forth in the First NPR, the amount of a 
company's financial revenues and financial assets would be calculated 
as a percentage of the company's consolidated annual gross revenues and 
consolidated total assets, respectively, as determined under and in 
accordance with (1) U.S. generally accepted accounting principles 
(GAAP), if the company uses GAAP in the ordinary course of its business 
in preparing its consolidated financial statements, (2) International 
Financial Reporting Standards (IFRS), if the company uses IFRS in the 
ordinary course of its business in preparing its consolidated financial 
statements, or (3) such other accounting standards that the Board 
determines are appropriate.\134\ The final rule retains this provision, 
but provides that the Council, with respect to the definition of a 
nonbank financial company for purposes of Title I of the Dodd-Frank Act 
(other than with respect to the definition of a significant nonbank 
financial company), or the Board, with respect to the definition of a 
significant nonbank financial company, may determine that an accounting 
standard other than GAAP or IFRS is appropriate on a case-by-case 
basis.\135\ In determining whether an accounting standard other than 
GAAP or IFRS is appropriate, the Board expects that the Council and the 
Board would consider various factors, including whether the accounting 
standard is used by the company in the ordinary course of its business 
in preparing its consolidated financial statements. Reliance on an 
accounting standard that the company uses in the ordinary course 
reduces the potential for companies to arbitrage the 85 percent 
financial test by changing the accounting standards used for these 
purposes.
---------------------------------------------------------------------------

    \134\ For example, one commenter requested that the Board 
clarify that statutory accounting principles (SAP) would qualify as 
an appropriate accounting standard for calculating a firm's 
financial revenues and financial assets. The commenter indicated 
that some insurance companies, for example, prepare their financial 
statements in accordance with SAP and are not required by insurance 
law or regulation to prepare financial statements in accordance with 
GAAP. A company could request that the Council or the Board, as 
appropriate, permit the company to use an alternative accounting 
standard, such as SAP. A company seeking to use an alternative 
accounting standard for purposes of determining whether it is 
predominantly engaged in financial activities should provide 
information to the Council or the Board that describes why the 
proposed alternative accounting standard likely would ensure a 
presentation of the company's consolidated revenues and assets in a 
manner that reliably allows a determination of whether the firm 
meets or does not meet the statutory test for a nonbank financial 
company.
    \135\ See Sec.  242.2(a)(3) of the Final Rule.
---------------------------------------------------------------------------

    As the Board explained in the First NPR, the rule allows companies 
to use their consolidated, year-end financial statements (prepared in 
accordance with the accounting standards discussed above) as the basis 
for determining their annual gross revenues and consolidated assets for 
purposes of the two-year test. This methodology is likely to provide a 
transparent, accurate, and comparable basis for determining such 
amounts across companies and, thus, should facilitate the ability of a 
company, the Council, and the Board to determine whether a company is a 
nonbank financial company for purposes of Title I of the Dodd-Frank 
Act. Moreover, allowing companies to use the year-end consolidated 
financial statements that they already prepare for financial reporting 
or other purposes should help reduce potential burden.
6. Timing of Determination
    The final rule provides the Council and the Board with the 
flexibility, in appropriate circumstances, to consider whether a 
company meets the statute's 85 percent financial revenue or asset test 
based on the full range of information that may be available concerning 
the company's activities and assets (including information obtained 
from other Federal or state financial supervisors or agencies) at any 
time rather than only as reflected in the company's year-end 
consolidated financial statements.\136\
---------------------------------------------------------------------------

    \136\ See Sec.  242.3(a)(3) of the Final Rule.
---------------------------------------------------------------------------

    For example, the Board notes that the mix of a company's revenues 
or assets, as well as the risks the company could pose to the U.S. 
financial system, may change significantly and quickly as a result of 
various types of transactions or actions, such as a merger, 
consolidation, acquisition, establishment of a new business line, or 
the initiation of a new activity. Moreover, these transactions and 
actions may occur at any time during a company's fiscal year and, 
accordingly, the effects of the transactions or actions may not be 
reflected in the year-end consolidated financial statements of the 
company for several months.
    Section 242.3(a)(3) of the final rule would allow the Council, with 
respect to the definition of a nonbank financial company for purposes 
of Title I (other than with respect to the definition of a significant 
nonbank financial company), or the Board, with respect to the 
definition of a significant nonbank financial company, to promptly 
consider the effect of changes in the nature or mix of a company's 
activities as a result of such a transaction or action. The Board 
expects that the Council and the Board would conduct such a case-by-
case review of whether a company is predominantly financial only when 
justified by the circumstances. In addition, this authority would 
enable the Council and the Board, in appropriate circumstances, to 
determine whether a company that does not prepare consolidated 
financial statements is predominantly engaged in financial activities 
through consultation with the company.

B. Significant Nonbank Financial Company and Significant Bank Holding 
Company

    As discussed above, the Dodd-Frank Act requires the Board to define 
the terms ``significant nonbank financial company'' and ``significant 
bank holding company'' by rule.\137\
---------------------------------------------------------------------------

    \137\ See sections 102(a)(7) of the Dodd-Frank Act; 12 U.S.C. 
5311(a)(7). These terms are used in two places in the Dodd-Frank 
Act. First, under section 113, the Council must consider the 
relationships of a nonbank financial company with significant 
nonbank financial companies and significant bank holding companies 
in determining whether the nonbank financial company should be 
subjected to supervision by the Federal Reserve (12 U.S.C. 
5323(a)(2), (b)(2)). Second, under section 165(d)(2), nonbank 
financial companies and bank holding companies with $50 billion or 
more of total consolidated assets must file credit reports that 
include their exposures to significant nonbank financial companies 
and significant bank holding companies (12 U.S.C. 5365(d)(2)).

---------------------------------------------------------------------------

[[Page 20774]]

    The First NPR defined a ``significant nonbank financial company'' 
to mean (i) any nonbank financial company supervised by the Board; and 
(ii) any other nonbank financial company that had $50 billion or more 
in total consolidated assets as of the end of its most recently 
completed fiscal year. The final rule retains this definition. The 
final rule defines a ``significant bank holding company,'' as ``any 
bank holding company or company that is, or is treated in the United 
States as, a bank holding company, that had $50 billion or more in 
total consolidated assets as of the end of the most recently completed 
calendar year'' as reported by the bank holding company or company that 
is, or is treated in the United States as, a bank holding company on 
the appropriate Federal Reserve form.
    Several commenters provided suggestions regarding the $50 billion 
asset threshold established in the proposed definitions of 
``significant nonbank financial company'' and ``significant bank 
holding company.'' One commenter requested that the Board adjust the 
threshold for inflation, and another commenter suggested that the Board 
define ``significant nonbank financial company'' to include only those 
firms that the Council has designated for Board supervision under 
section 113 and eliminate that portion of the definition based on the 
$50 billion asset threshold.
    The Board designed the threshold to provide a transparent standard 
that other companies and the Council may use in meeting their 
respective statutory obligations to consider the relationships of 
companies with ``significant'' nonbank financial companies and bank 
holding companies. The requirement that firms calculate their exposure 
to significant nonbank financial companies and bank holding companies 
based on widely-used and transparent standards likely will reduce the 
burden imposed on the Council and those firms that are required to 
calculate their exposure to significant entities.
    In establishing this threshold, the Board considered its 
supervisory experience with bank holding companies. The Board also 
considered the fact that Congress established $50 billion in total 
consolidated assets as the threshold (without an inflation adjustment) 
at which bank holding companies should be subject to enhanced 
prudential supervision without any special determination by the Council 
that the bank holding company's failure would pose a threat to 
financial stability. The Board also notes that a company that meets the 
definition of either a ``significant'' nonbank financial company or 
bank holding company would not be subject to any additional supervision 
or regulation by virtue of that definition.
    For these reasons, the Board has concluded that there is a 
sufficient basis for adopting the $50 billion threshold for purposes of 
defining ``significant'' nonbank financial companies and bank holding 
companies. The Board has determined not to include an inflation 
adjustment provision in the final rule. An inflation adjustment would 
add complexity and burden to the definition without any significant 
benefit in more accurately defining the relevant terms. However, the 
Board may consider amending the $50 billion threshold in the future if 
the Board determines that such reconsideration is appropriate.
    Several commenters suggested that the Board exclude certain assets 
from the calculation of a nonbank financial company's ``total 
consolidated assets,'' despite the consolidation of such assets on the 
company's balance sheet under GAAP or other appropriate accounting 
standards. For instance, several commenters requested that the Board 
exclude managed assets and investment fund assets when calculating the 
total assets of the asset manager or fund adviser in situations in 
which applicable accounting standards provide for the consolidation of 
such assets on the balance sheets of the asset manager and the fund 
adviser, respectively. The commenters contended that exclusion of such 
assets was appropriate, because such assets are not the at-risk assets 
of the manager or adviser.
    Another commenter requested that the calculation of the $50 billion 
threshold with respect to asset managers and fund advisers exclude 
capitalized goodwill and other intangibles that are not financial 
assets that are impacted by temporary market movements, and for which 
the clients have no direct or indirect ownership interest. Commenters 
also suggested that separate investment funds managed by the same 
investment adviser not be consolidated when measuring total 
consolidated assets of the adviser. With respect to the definition of a 
``significant bank holding company,'' one commenter suggested that the 
$50 billion asset calculation should include only the U.S.-based assets 
of the bank holding company or foreign bank treated as a bank holding 
company, rather than the company's worldwide consolidated assets.
    The Board has considered these comments and has retained the 
requirements in the final rule that the calculation of ``total 
consolidated assets'' of a nonbank financial company include a 
company's worldwide consolidated assets as determined in accordance 
with GAAP, IFRS, or other appropriate accounting standards. The Board 
believes that the determination of total consolidated assets based on 
applicable accounting principles provides a reliable, uniform (across a 
given accounting framework), and simple approach that is most readily 
applied by the Council, the Board, and affected companies with the 
least burden. Any other approach would require the Council, the Board, 
and affected companies to obtain information from the ``significant'' 
firms and make adjustments to the reported assets of the firm, which 
would be burdensome and potentially unreliable.
    The Board also has retained the proposed definition of a 
``significant bank holding company'' as any bank holding company or 
foreign bank or company that is treated as a bank holding company that 
had $50 billion or more in total consolidated assets as of the end of 
the most recently completed calendar year (as reported by the bank 
holding company or foreign bank on the appropriate Federal Reserve 
form), based on the bank holding company's consolidated worldwide 
assets. Using worldwide consolidated assets measures the significance 
of a bank holding company and, as above, imposes the least burden on 
the Council, the Board, and the relevant entities.
    Several commenters requested that the Board highlight the 
distinction between ``significant'' nonbank financial companies and 
nonbank financial companies that are designated by the Council for 
supervision by the Board under section 113 of the Dodd-Frank Act. 
Qualifying as a significant nonbank financial company is not tantamount 
to a determination by the Council to subject a nonbank financial 
company to heightened prudential supervision by the Board under section 
113 of the Dodd-Frank Act. A company that is considered to be a 
significant bank holding company or a significant nonbank financial 
company does not become subject to any additional supervision or 
regulation by virtue of that definition.
    One commenter expressed concern that the proposed rule neither 
established a procedure under which a company could determine whether 
it were a ``significant'' nonbank financial

[[Page 20775]]

company, nor imposed a requirement that a company calculate or publish 
its classification as significant. Like the proposed rule, the final 
rule does not impose a requirement that a company determine whether it 
meets the definition of either a ``significant'' nonbank financial 
company or bank holding company, because a company is not required to 
report its status as ``significant'' to the Board. Rather, the 
determination regarding a company's status as ``significant'' as 
provided in the final rule is intended to be self-executing and based 
on readily available financial statements.
    One commenter suggested that the Board consider defining 
``significant'' companies differently for purposes of sections 113 and 
165(d)(2) of the Act. As the Board discussed in the proposed rule, 
while the Board alone is responsible for defining ``significant'' 
nonbank financial companies and bank holding companies for purposes of 
section 113, the Board and the FDIC are jointly responsible for 
developing rules to implement the credit exposure reporting 
requirements under section 165(d)(2), under which nonbank financial 
companies supervised by the Board and bank holding companies and 
foreign banks treated as bank holding companies with $50 billion or 
more in assets must report their credit exposure to ``significant'' 
nonbank financial companies and bank holding companies. The Board and 
the FDIC sought comment on a joint proposed rule on April 12, 2011, to 
implement the provisions of section 165(d), including the credit 
exposure reporting requirements.\138\ The joint proposed rule adopted 
the same definitions of the terms ``significant'' nonbank financial 
company and bank holding company as proposed by the Board in the First 
NPR, and as adopted in this final rulemaking.
---------------------------------------------------------------------------

    \138\ See 76 FR 22648 (2011). The Board and FDIC issued a final 
rule implementing several of the provisions of section 165(d) on 
November 1, 2011. The agencies did not finalize the credit exposure 
reporting requirement at that time. See 76 FR 67323, 67327 (November 
1, 2011).
---------------------------------------------------------------------------

    Several commenters requested that the final rule address 
circumstances under which a determination that a company is a 
significant nonbank financial company or bank holding company would be 
treated by the Board as confidential under the Freedom of Information 
Act. Other commenters requested that the Board refrain from publishing 
a list of significant nonbank financial companies and bank holding 
companies.
    Because neither the statute nor the final rule requires a 
significant nonbank financial company or bank holding company to report 
its status as ``significant'' to the Board, the statute and the final 
rule also do not require the Board to make a determination regarding 
whether a nonbank financial company or bank holding company is 
``significant.'' Moreover, because the Dodd-Frank Act imposes 
requirements on certain firms that deal with ``significant'' nonbank 
financial companies and bank holding companies, and not on the nonbank 
financial companies or bank holding companies themselves, it is 
important that firms that must identify significant companies can do so 
without impediments on the availability of information.

III. Administrative Law Matters

A. Paperwork Reduction Act

    In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 
Ch. 3506; 5 CFR part 1320 Appendix A.1), the Board reviewed this final 
rule under the authority delegated to the Board by the Office of 
Management and Budget (``OMB''). The final rule contains no collections 
of information under the PRA. See 44 U.S.C. 3502(3). Accordingly, there 
is no paperwork burden associated with the final rule.\139\ One 
commenter asserted that the Board's analysis of the proposed rule under 
the Paperwork Reduction Act was insufficient because the proposal did 
not contain any notice or request for comment regarding any collection 
of information to determine whether a company would be considered to be 
a ``significant nonbank financial company.'' However, neither the 
statute nor the final rule requires: (i) A ``significant'' nonbank 
financial company or bank holding company to report its status as 
``significant'' to the Board, or (ii) the Board to make such a 
determination regarding a nonbank financial company or bank holding 
company. For these reasons, the Board does not anticipate conducting or 
sponsoring the collection of any information related to the Board's 
establishment of the definitions of ``significant'' nonbank financial 
company'' and ``significant'' bank holding company in this final rule.
---------------------------------------------------------------------------

    \139\ As described previously, the First NPR proposed a formal 
procedure under which a company could request in writing a 
determination from the Board as to whether a particular activity is 
financial in nature. However, the Board believes that it is 
unnecessary to include in the final rule a formal procedure under 
which a company may request in writing that the Board determine 
whether a particular activity is financial in nature. The 
elimination of this formal procedure from the final rule has 
eliminated all potential paperwork burden associated with this final 
rule.
---------------------------------------------------------------------------

B. Regulatory Flexibility Act

    In accordance with Section 4(a) of the Regulatory Flexibility Act, 
5 U.S.C. 601 et seq. (``RFA''), the Board must publish a final 
regulatory flexibility analysis with this rulemaking. The RFA requires 
an agency either to provide a final regulatory flexibility analysis 
with a final rule for which a general notice of proposed rulemaking is 
required or to certify that the final rule will not have a significant 
economic impact on a substantial number of small entities. Based on its 
analysis and for the reasons stated below, the Board believes that the 
final rule will not have a significant economic impact on a substantial 
number of small entities. Nevertheless, the Board is publishing a final 
regulatory flexibility analysis.
    In accordance with sections 102(b) and 102(a)(7) of the Dodd-Frank 
Act, the Board is adopting Regulation PP (12 CFR 242 et seq.) to 
establish the criteria for determining if a company is ``predominantly 
engaged in financial activities'' and to define the terms ``significant 
nonbank financial company'' and ``significant bank holding company.'' 
\140\ The reasons and justifications for the rule are described in the 
SUPPLEMENTARY INFORMATION. As discussed in the SUPPLEMENTARY 
INFORMATION, the criteria and definitions that are established by the 
rule are relevant to the authority of the Council to require that a 
nonbank financial company become subject to consolidated prudential 
supervision by the Board, because material financial distress at the 
company, or the nature, scope, size, scale, concentration, 
interconnectedness, or mix of the company's activities, could pose a 
threat to the financial stability of the United States.
---------------------------------------------------------------------------

    \140\ 12 U.S.C. 5311(a)(7) and (b).
---------------------------------------------------------------------------

    Although asset size may not be the determinative factor of whether 
a company may pose systemic risks, it is an important 
consideration.\141\ Under regulations issued by the Small Business 
Administration (``SBA''), firms within the ``Finance and Insurance'' 
sector are considered ``small'' if they have asset sizes that vary from 
$7 million or less in assets to $175 million or less in assets.\142\ 
The Board believes that the Finance and Insurance sector constitutes a 
reasonable universe of firms for these purposes because such firms 
generally engage in activities that are financial in nature. A 
financial firm that is at or below these size thresholds is not likely 
to be designated by the Council under section 113 of the Dodd-

[[Page 20776]]

Frank Act because material financial distress at such a firm, or the 
nature, scope, size, scale, concentration, interconnectedness, or mix 
of its activities, is not likely to pose a threat to the financial 
stability of the United States.\143\
---------------------------------------------------------------------------

    \141\ See 77 FR 21637 (April 11, 2012).
    \142\ 13 CFR 121.201.
    \143\ The terms ``significant nonbank financial company'' and 
``significant bank holding company'' also are used in the credit 
exposure reporting provisions of section 165(d) of the Dodd-Frank 
Act, which apply to bank holding companies and foreign banks that 
are treated as a bank holding company that have $50 billion or more 
in assets (as well as nonbank financial companies supervised by the 
Board). Bank holding companies and foreign banks subject to these 
credit exposure reporting requirements substantially exceed the $175 
million asset threshold at which a banking entity is considered 
``small'' under regulations issued by the SBA.
---------------------------------------------------------------------------

    In addition, as described in the Supplementary Information, the 
Board also has taken several steps to reduce the potential burden of 
the rule on all companies that may be affected by the rule. These steps 
include allowing companies to use their consolidated, year-end 
financial statements prepared in accordance with GAAP or IFRS as the 
basis for determining whether they are predominantly engaged in 
financial activities, and establishing a rule of construction governing 
the application of the two-year test to revenues and assets 
attributable to a company's unconsolidated investments. In addition, 
the presumptions adopted by the Board in connection with determining 
whether a company is predominantly engaged in financial activities will 
reduce burden on companies attempting to determine whether they are 
predominantly engaged in financial activities and on companies that are 
required to report their credit exposure to significant bank holding 
companies and significant nonbank financial companies under section 
165(d) of the Dodd-Frank Act.
    One commenter expressed the view that although it is unlikely that 
companies with less than $175 million in assets would be designated by 
the Council, in the event that a money market mutual fund were 
designated, small businesses, municipal entities, and small non-profit 
organizations that invest in the fund would face higher costs. 
Furthermore, the commenter argued that a money market mutual fund that 
was designated would likely be less active in the short term debt 
markets, which would lead to less liquid and more expensive markets for 
small municipal and governmental entities that issue commercial paper. 
For these reasons, the commenter asserted that the RFA requires the 
Board to perform a cost-benefit analysis of its proposed rules because 
the RFA applies even in those instances in which a regulation does not 
directly apply to an entity, but directly affects it.\144\
---------------------------------------------------------------------------

    \144\ The commenter cited to Aeronautical Repair Station Ass'n, 
Inc. v. FAA, 494 F.3d 161, 177 (D.C. Cir. 2007). In that case, the 
FAA regulation at issue required employees who performed certain 
functions ``directly or by contract (including by subcontract at any 
tier)'' to be subject to drug and alcohol testing. The commenter 
stated that the ``court rejected arguments that an RFA analysis was 
unnecessary because contractors of air carriers were not `directly 
regulated' and were not the `targets' of the regulation. The 
commenter asserted that the court held that contractors were 
`subject to the proposed regulation' for purposes of the RFA even 
though the regulation was `immediately addressed' to the air 
carriers, because the regulations applied to employees of the 
contractors, just as it applied to employees of the air carriers. 
The contractors were `directly affected and therefore regulated' 
within the meaning of the RFA.''
---------------------------------------------------------------------------

    The question of whether the RFA requires consideration of the 
indirect application of a rule has been considered by the courts, which 
have held that the RFA only requires an analysis of how a rule affects 
small entities that would be directly subject to its requirements.\145\ 
As described above, the final rule establishes the criteria for 
determining if a company is ``predominantly engaged in financial 
activities'' and defines the terms ``significant nonbank financial 
company'' and ``significant bank holding company,'' which are relevant 
to the authority of the Council to designate a nonbank financial 
company for consolidated prudential supervision by the Board, because 
the nonbank financial company could pose a threat to the financial 
stability of the United States. The final rule does not impose 
requirements directly on any entity.\146\ Moreover, as the Board noted 
in the First NPR, it is extremely unlikely that a company with less 
than $175 million in assets would be designated. As such, the Board 
believes that the final rule will not have a significant economic 
impact on a substantial number of small entities.
---------------------------------------------------------------------------

    \145\ See Mid-Tex Elec. Coop v. FERC, 773 F.2d 327 (D.C. Cir. 
1985) and American Trucking Ass'ns v. EPA, 175 F.3d 1027, 1044 (D.C. 
Cir 1999), aff'd in part and rev'd in part on other grounds, Whitman 
v. American Trucking Ass'ns, 531 I/S/ 457 (2001). In Mid-Tex, the 
court rejected the argument that ``the RFA is intended to apply to 
all rules that affect small entities, whether the small entities are 
directly regulated or not,'' and held that the RFA requires agencies 
to consider the ``economic impact'' of a regulation on ``a 
substantial number of small entities that are subject to the 
requirements'' of the regulation. See 773 F.2d at 342 (emphasis 
added). The court further stated that ``Congress did not intend to 
require that every agency consider every indirect effect that any 
regulation might have on small businesses in any stratum of the 
national economy.'' See id. at 343. The court in Aeronautical Repair 
Station, the case cited by the commenter, distinguished Mid-Tex and 
its progeny from the facts in that case, in which the regulations at 
issue ``expressly require[d] that the employees of contractors and 
subcontractors be tested'' for drug and alcohol use. See 494 F.3d at 
177. For this reason, the court in Aeronautical Repair Station found 
that the rule at issue ``impose[d] responsibilities directly on the 
contractors and subcontractors and they [we]re therefore parties 
affected by and regulated by it.'' See id. (emphasis added).
    \146\ 12 U.S.C. 5311(a)(7) and (b).
---------------------------------------------------------------------------

    The same commenter also asserted that the Board is required to 
perform a cost benefit analysis under Executive Order 13579. The 
Executive Order cited by the commenter does not mandate that 
independent agencies such as the Board perform a cost benefit analysis 
of their regulations. However, the Board takes seriously the importance 
of evaluating the burdens imposed by its rulemaking efforts. For 
example, the Board seeks to adopt final rules that faithfully reflect 
the statutory provisions and Congressional intent while minimizing 
regulatory burden. In addition, the Board provides an analysis of the 
costs to small entities of its rules consistent with the RFA and 
computes the anticipated cost of paperwork for affected entities 
consistent with the Paperwork Reduction Act in its rulemaking. As 
described above, the Board conducted a final regulatory flexibility 
analysis and an analysis under the PRA in connection with this 
rulemaking.

List of Subjects in 12 CFR Part 242

    Administrative practice and procedure, Holding companies, Nonbank 
financial companies.

Authority and Issuance

    For the reasons stated in the preamble, the Board adds new Part 242 
to Chapter II of Title 12 as follows:

PART 242--DEFINITIONS RELATING TO TITLE I OF THE DODD-FRANK ACT 
(REGULATION PP)

Sec.
242.1 Authority and purpose.
242.2 Definitions.
242.3 Nonbank companies ``predominantly engaged'' in financial 
activities.
242.4 Significant nonbank financial companies and significant bank 
holding companies.
Appendix A to Part 242--Financial Activities for Purposes of Title I 
of the Dodd-Frank Act

    Authority:  12 U.S.C. 5311.


Sec.  242.1  Authority and purpose.

    (a) Authority. This part is issued by the Board pursuant to 
sections 102(a)(7) and (b) of the Dodd-Frank Wall Street Reform and 
Consumer Protection Act (Dodd-Frank Act) (12 U.S.C. 5311(a)(7) and 
(b)).
    (b) Purpose. (1) This part establishes the criteria for determining 
if a company

[[Page 20777]]

is ``predominantly engaged in financial activities'' as required under 
section 102(b) of the Dodd-Frank Act (12 U.S.C. 5311(b)) for purposes 
of Title I of the Dodd-Frank Act.
    (2) This part defines the terms ``significant nonbank financial 
company'' and ``significant bank holding company'' as provided in 
section 102(a)(6) of the Dodd-Frank Act for purposes of--
    (i) Section 113 of the Dodd-Frank Act (12 U.S.C. 5323) relating to 
the designation of nonbank financial companies by the Financial 
Stability Oversight Council (Council) for supervision by the Board; and
    (ii) Section 165(d)(2) of the Dodd-Frank Act (12 U.S.C. 5365(d)(2)) 
relating to the credit exposure reports required to be filed by--
    (A) A nonbank financial company supervised by the Board; and
    (B) A bank holding company or foreign bank subject to the Bank 
Holding Company Act (BHC Act) (12 U.S.C. 1841 et seq.) that has $50 
billion or more in total consolidated assets.


Sec.  242.2  Definitions.

    For purposes of this part, the following definitions shall apply:
    Applicable accounting standards.--The term ``applicable accounting 
standards'' with respect to a company means:
    (1) U.S. generally accepted accounting principles (GAAP), if the 
company uses GAAP in the ordinary course of its business in preparing 
its consolidated financial statements;
    (2) International Financial Reporting Standards (IFRS), if the 
company uses IFRS in the ordinary course of its business in preparing 
its consolidated financial statements, or
    (3) Such other accounting standards that the Council, with respect 
to the definition of a nonbank financial company for purposes of Title 
I of the Dodd-Frank Act (other than with respect to the definition of a 
significant nonbank financial company), or the Board, with respect to 
the definition of a significant nonbank financial company, determines 
are appropriate on a case-by-case basis.
    Foreign nonbank financial company.--The term ``foreign nonbank 
financial company'' means a company (other than a company that is, or 
is treated in the United States, as a bank holding company) that is--
    (1) Incorporated or organized in a country other than the United 
States; and
    (2) Predominantly engaged in (including through a branch in the 
United States) financial activities as defined in Sec.  242.3 of this 
part.
    Nonbank financial company.--The term ``nonbank financial company'' 
means a U.S. nonbank financial company and a foreign nonbank financial 
company.
    Nonbank financial company supervised by the Board.--The term 
``nonbank financial company supervised by the Board'' means a nonbank 
financial company or other company that the Council has determined 
under section 113 of the Dodd-Frank Act (12 U.S.C. 5323) should be 
supervised by the Board and for which such determination is still in 
effect.
    State.--The term ``State'' includes any State, commonwealth, 
territory, or possession of the United States, the District of 
Columbia, the Commonwealth of Puerto Rico, the Commonwealth of the 
Northern Mariana Islands, American Samoa, Guam, and the United States 
Virgin Islands.
    U.S. nonbank financial company.--The term ``U.S. nonbank financial 
company'' means a company that--
    (1) Is incorporated or organized under the laws of the United 
States or any State;
    (2) Is predominantly engaged in financial activities as defined in 
Sec.  242.3 of this part; and
    (3) Is not--
    (i) A bank holding company;
    (ii) A Farm Credit System institution chartered and subject to the 
provisions of the Farm Credit Act of 1971 (12 U.S.C. 2001 et seq.);
    (iii) A national securities exchange (or parent thereof), clearing 
agency (or parent thereof, unless the parent is a bank holding 
company), security-based swap execution facility, or security-based 
swap data repository that, in each case, is registered with the 
Securities and Exchange Commission as such; or
    (iv) A board of trade designated as a contract market (or parent 
thereof), a derivatives clearing organization (or parent thereof, 
unless the parent is a bank holding company), a swap execution 
facility, or a swap data repository that, in each case, is registered 
with the Commodity Futures Trading Commission as such.


Sec.  242.3  Nonbank companies ``predominantly engaged'' in financial 
activities.

    (a) In general. A company is ``predominantly engaged in financial 
activities'' for purposes of this section if--
    (1) The consolidated annual gross financial revenues of the company 
in either of its two most recently completed fiscal years represent 85 
percent or more of the company's consolidated annual gross revenues (as 
determined in accordance with applicable accounting standards) in that 
fiscal year;
    (2) The consolidated total financial assets of the company as of 
the end of either of its two most recently completed fiscal years 
represent 85 percent or more of the company's consolidated total assets 
(as determined in accordance with applicable accounting standards) as 
of the end of that fiscal year; or
    (3) The Council, with respect to the definition of a nonbank 
financial company for purposes of Title I of the Dodd-Frank Act (other 
than with respect to the definition of a significant nonbank financial 
company), or the Board, with respect to the definition of a significant 
nonbank financial company, determines, based on all the facts and 
circumstances, that--
    (i) The consolidated annual gross financial revenues of the company 
represent 85 percent or more of the company's consolidated annual gross 
revenues; or
    (ii) The consolidated total financial assets of the company 
represent 85 percent or more of the company's consolidated total 
assets.
    (b) Consolidated annual gross financial revenues. For purposes of 
this section, the ``consolidated annual gross financial revenues'' of a 
company means that portion of the consolidated annual gross revenues of 
the company (as determined in accordance with applicable accounting 
standards) that are derived, directly or indirectly, by the company or 
any of its subsidiaries from--
    (1) Activities that are financial in nature; or
    (2) The ownership, control, or activities of an insured depository 
institution or any subsidiary of an insured depository institution.
    (c) Consolidated total financial assets. For purposes of this 
section, the ``consolidated total financial assets'' of a company means 
that portion of the consolidated total assets of the company (as 
determined in accordance with applicable accounting standards) that are 
related to--
    (1) Activities that are financial in nature; or
    (2) The ownership, control, or activities of an insured depository 
institution or any subsidiary of an insured depository institution.
    (d) Activities that are financial in nature--(1) In general. For 
purposes of determining whether a company is predominantly engaged in 
financial activities under this section, activities that are financial 
in nature are set forth in the appendix to this part. Nothing in

[[Page 20778]]

this part limits the authority of the Board under any other provision 
of law or regulation to modify the activities determined to be 
financial in nature for purposes of this section or for purposes of the 
BHC Act or to provide interpretations of section 4(k) of the BHC Act.
    (2) Effect of other authority. Any activity described in the 
appendix is financial in nature for purposes of this part regardless of 
whether--
    (i) A bank holding company (including a financial holding company 
or a company that is, or is treated in the United States as, a bank 
holding company) may be authorized to engage in the activity, or own or 
control shares of a company engaged in such activity, under any other 
provisions of the BHC Act or other Federal law including, but not 
limited to, section 4(a)(2), section 4(c)(5), section 4(c)(6), section 
4(c)(7), section 4(c)(9), or section 4(c)(13) of the BHC Act (12 U.S.C. 
1843(a)(2), (c)(5), (c)(6), (c)(7), (c)(9), or (c)(13)) and the Board's 
implementing regulations; or
    (ii) Other provisions of Federal or state law or regulations 
prohibit, restrict, or otherwise place conditions on the conduct of the 
activity by a bank holding company (including a financial holding 
company or a company that is, or is treated in the United States, as a 
bank holding company) or bank holding companies generally.
    (e) Rules of construction. For purposes of determining whether a 
company is predominantly engaged in financial activities under this 
section--
    (1) Unconsolidated investments. (i) Unless otherwise determined by 
the Council or the Board in accordance with paragraph (e)(1)(ii) of 
this section, revenues derived from, and assets related to, an 
investment by the company in an entity whose financial statements are 
not consolidated with those of the company are presumed to be financial 
in nature.
    (ii) A company may seek to rebut the presumption described in 
paragraph (e)(1)(i) of this section by providing evidence to the 
Council, with respect to the definition of a nonbank financial company 
for purposes of Title I of the Dodd-Frank Act (other than with respect 
to the definition of a significant nonbank financial company), or the 
Board, with respect to the definition of a significant nonbank 
financial company, that the shares or ownership interests are not held 
in connection with a bona fide merchant or investment banking activity, 
are not held in connection with the activity of investing for others, 
do not represent an investment in an entity engaged in activities that 
are financial in nature as defined in the appendix, or are not 
otherwise related to a financial activity.
    (2) Accounts receivable. (i) Unless otherwise determined by the 
Council or the Board in accordance with paragraph (e)(2)(ii) of this 
section, an account receivable is presumed to be an asset related to 
the financial activity of extending credit.
    (ii) A company may seek to rebut the presumption described in 
paragraph (e)(2)(i) of this section by providing evidence to the 
Council, with respect to the definition of a nonbank financial company 
for purposes of Title I of the Dodd-Frank Act (other than with respect 
to the definition of a significant nonbank financial company), or the 
Board, with respect to the definition of a significant nonbank 
financial company, that the account receivable is not related to a 
financial activity.
    (3) Goodwill. Goodwill is excluded from a company's consolidated 
total assets and consolidated total financial assets.
    (4) Cash and cash equivalents. (i) Cash is excluded from a 
company's consolidated total assets and consolidated total financial 
assets.
    (ii) Cash equivalents are assets related to a financial activity.
    (5) Intangible assets. Intangible assets are treated in the same 
manner as the transaction or asset that gives rise to the intangible 
asset.


Sec.  242.4  Significant nonbank financial companies and significant 
bank holding companies.

    For purposes of Title I of the Dodd-Frank Act, the following 
definitions shall apply:
    (a) Significant nonbank financial company. A ``significant nonbank 
financial company'' means--
    (1) Any nonbank financial company supervised by the Board; and
    (2) Any other nonbank financial company that had $50 billion or 
more in total consolidated assets (as determined in accordance with 
applicable accounting standards) as of the end of its most recently 
completed fiscal year.
    (b) Significant bank holding company. A ``significant bank holding 
company'' means any bank holding company or company that is, or is 
treated in the United States as, a bank holding company, that had $50 
billion or more in total consolidated assets as of the end of the most 
recently completed calendar year, as reported on either the Federal 
Reserve's FR Y-9C (Consolidated Financial Statement for Bank Holding 
Companies), or any successor form thereto, or the Federal Reserve's 
Form FR Y-7Q (Capital and Asset Report for Foreign Banking 
Organizations), or any successor form thereto.

Appendix A to Part 242--Financial Activities for Purposes of Title I of 
the Dodd-Frank Act

    (a) Lending, exchanging, transferring, investing for others, or 
safeguarding money or securities.
    (b) Insuring, guaranteeing, or indemnifying against loss, harm, 
damage, illness, disability, or death, or providing and issuing 
annuities, and acting as principal, agent, or broker for purposes of 
the foregoing, in any state.
    (c) Providing financial, investment, or economic advisory 
services, including advising an investment company (as defined in 
section 3 of the Investment Company Act of 1940).
    (d) Issuing or selling instruments representing interests in 
pools of assets permissible for a bank to hold directly.
    (e) Underwriting, dealing in, or making a market in securities.
    (f) Engaging in any activity that the Board has determined to be 
so closely related to banking or managing or controlling banks as to 
be a proper incident thereto, which include--
    (1) Extending credit and servicing loans. Making, acquiring, 
brokering, or servicing loans or other extensions of credit 
(including factoring, issuing letters of credit and accepting 
drafts) for the company's account or for the account of others.
    (2) Activities related to extending credit. Any activity usual 
in connection with making, acquiring, brokering or servicing loans 
or other extensions of credit, including the following activities:
    (i) Real estate and personal property appraising. Performing 
appraisals of real estate and tangible and intangible personal 
property, including securities.
    (ii) Arranging commercial real estate equity financing. Acting 
as intermediary for the financing of commercial or industrial 
income-producing real estate by arranging for the transfer of the 
title, control, and risk of such a real estate project to one or 
more investors.
    (iii) Check-guaranty services. Authorizing a subscribing 
merchant to accept personal checks tendered by the merchant's 
customers in payment for goods and services, and purchasing from the 
merchant validly authorized checks that are subsequently dishonored.
    (iv) Collection agency services. Collecting overdue accounts 
receivable, either retail or commercial.
    (v) Credit bureau services. Maintaining information related to 
the credit history of consumers and providing the information to a 
credit grantor who is considering a borrower's application for 
credit or who has extended credit to the borrower.
    (vi) Asset management, servicing, and collection activities. 
Engaging under contract with a third party in asset management, 
servicing, and collection \1\ of assets of a type

[[Page 20779]]

that an insured depository institution may originate and own.
---------------------------------------------------------------------------

    \1\ Asset management services include acting as agent in the 
liquidation or sale of loans and collateral for loans, including 
real estate and other assets acquired through foreclosure or in 
satisfaction of debts previously contracted.
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    (vii) Acquiring debt in default. Acquiring debt that is in 
default at the time of acquisition.
    (viii) Real estate settlement servicing. Providing real estate 
settlement services.\2\
---------------------------------------------------------------------------

    \2\ For purposes of this section, real estate settlement 
services do not include providing title insurance as principal, 
agent, or broker.
---------------------------------------------------------------------------

    (3) Leasing personal or real property. Leasing personal or real 
property or acting as agent, broker, or adviser in leasing such 
property if:
    (i) The lease is on a nonoperating basis; \3\
---------------------------------------------------------------------------

    \3\ The requirement that the lease is on a nonoperating basis 
means that the company does not, directly or indirectly, engage in 
operating, servicing, maintaining, or repairing leased property 
during the lease term. For purposes of the leasing of automobiles, 
the requirement that the lease is on a nonoperating basis means that 
the company does not, directly or indirectly: (1) Provide servicing, 
repair, or maintenance of the leased vehicle during the lease term; 
(2) purchase parts and accessories in bulk or for an individual 
vehicle after the lessee has taken delivery of the vehicle; (3) 
provide the loan of an automobile during servicing of the leased 
vehicle; (4) purchase insurance for the lessee; or (5) provide for 
the renewal of the vehicle's license merely as a service to the 
lessee where the lessee could renew the license without 
authorization from the lessor.
---------------------------------------------------------------------------

    (ii) The initial term of the lease is at least 90 days; and
    (iii) In the case of leases involving real property:
    (A) At the inception of the initial lease, the effect of the 
transaction will yield a return that will compensate the lessor for 
not less than the lessor's full investment in the property plus the 
estimated total cost of financing the property over the term of the 
lease from rental payments, estimated tax benefits, and the 
estimated residual value of the property at the expiration of the 
initial lease; and
    (B) The estimated residual value of property for purposes of 
paragraph (f)(3)(iii)(A) of this section shall not exceed 25 percent 
of the acquisition cost of the property to the lessor.
    (4) Operating nonbank depository institutions.
    (i) Industrial banking. Owning, controlling, or operating an 
industrial bank, Morris Plan bank, or industrial loan company that 
is not a bank for purposes of the BHC Act.
    (ii) Operating savings associations. Owning, controlling, or 
operating a savings association.
    (5) Trust company functions. Performing functions or activities 
that may be performed by a trust company (including activities of a 
fiduciary, agency, or custodial nature), in the manner authorized by 
federal or state law that is not a bank for purposes of section 2(c) 
of the Bank Holding Company Act.
    (6) Financial and investment advisory activities. Acting as 
investment or financial advisor to any person, including (without, 
in any way, limiting the foregoing):
    (i) Serving as investment adviser (as defined in section 
2(a)(20) of the Investment Company Act of 1940, 15 U.S.C. 80a-
2(a)(20)), to an investment company registered under that act, 
including sponsoring, organizing, and managing a closed-end 
investment company;
    (ii) Furnishing general economic information and advice, general 
economic statistical forecasting services, and industry studies;
    (iii) Providing advice in connection with mergers, acquisitions, 
divestitures, investments, joint ventures, leveraged buyouts, 
recapitalizations, capital structurings, financing transactions and 
similar transactions, and conducting financial feasibility studies; 
\4\
---------------------------------------------------------------------------

    \4\ Feasibility studies do not include assisting management with 
the planning or marketing for a given project or providing general 
operational or management advice.
---------------------------------------------------------------------------

    (iv) Providing information, statistical forecasting, and advice 
with respect to any transaction in foreign exchange, swaps, and 
similar transactions, commodities, and any forward contract, option, 
future, option on a future, and similar instruments;
    (v) Providing educational courses, and instructional materials 
to consumers on individual financial management matters; and
    (vi) Providing tax-planning and tax-preparation services to any 
person.
    (7) Agency transactional services for customer investments.
    (i) Securities brokerage. Providing securities brokerage 
services (including securities clearing and/or securities execution 
services on an exchange), whether alone or in combination with 
investment advisory services, and incidental activities (including 
related securities credit activities and custodial services).
    (ii) Riskless principal transactions. Buying and selling in the 
secondary market all types of securities on the order of customers 
as a ``riskless principal'' to the extent of engaging in a 
transaction in which the company, after receiving an order to buy 
(or sell) a security from a customer, purchases (or sells) the 
security for its own account to offset a contemporaneous sale to (or 
purchase from) the customer.
    (iii) Private placement services. Acting as agent for the 
private placement of securities in accordance with the requirements 
of the Securities Act of 1933 (1933 Act) and the rules of the 
Securities and Exchange Commission.
    (iv) Futures commission merchant. Acting as a futures commission 
merchant for unaffiliated persons in the execution, clearance, or 
execution and clearance of any futures contract and option on a 
futures contract.
    (v) Other transactional services. Providing to customers as 
agent transactional services with respect to swaps and similar 
transactions, any transaction described in paragraph (f)(8) of this 
appendix, any transaction that is permissible for a state member 
bank, and any other transaction involving a forward contract, 
option, futures, option on a futures or similar contract (whether 
traded on an exchange or not) relating to a commodity that is traded 
on an exchange.
    (8) Investment transactions as principal.
    (i) Underwriting and dealing in government obligations and money 
market instruments. Underwriting and dealing in obligations of the 
United States, general obligations of states and their political 
subdivisions, and other obligations that state member banks of the 
Federal Reserve System may be authorized to underwrite and deal in 
under 12 U.S.C. 24 and 335, including banker's acceptances and 
certificates of deposit.
    (ii) Investing and trading activities. Engaging as principal in:
    (A) Foreign exchange;
    (B) Forward contracts, options, futures, options on futures, 
swaps, and similar contracts, whether traded on exchanges or not, 
based on any rate, price, financial asset (including gold, silver, 
platinum, palladium, copper, or any other metal), nonfinancial 
asset, or group of assets, other than a bank-ineligible security,\5\ 
if--
---------------------------------------------------------------------------

    \5\ A bank-ineligible security is any security that a state 
member bank is not permitted to underwrite or deal in under 12 
U.S.C. 24 and 335.
---------------------------------------------------------------------------

    (1) A state member bank is authorized to invest in the asset 
underlying the contract;
    (2) The contract requires cash settlement;
    (3) The contract allows for assignment, termination, or offset 
prior to delivery or expiration, and the company--
    (i) Makes every reasonable effort to avoid taking or making 
delivery of the asset underlying the contract; or
    (ii) Receives and instantaneously transfers title to the 
underlying asset, by operation of contract and without taking or 
making physical delivery of the asset; or
    (4) The contract does not allow for assignment, termination, or 
offset prior to delivery or expiration and is based on an asset for 
which futures contracts or options on futures contracts have been 
approved for trading on a U.S. contract market by the Commodity 
Futures Trading Commission, and the company--
    (i) Makes every reasonable effort to avoid taking or making 
delivery of the asset underlying the contract; or
    (ii) Receives and instantaneously transfers title to the 
underlying asset, by operation of contract and without taking or 
making physical delivery of the asset.
    (C) Forward contracts, options,\6\ futures, options on futures, 
swaps, and similar contracts, whether traded on exchanges or not, 
based on an index of a rate, a price, or the value of any financial 
asset, nonfinancial asset, or group of assets, if the contract 
requires cash settlement.
---------------------------------------------------------------------------

    \6\ This reference does not include acting as a dealer in 
options based on indices of bank-ineligible securities when the 
options are traded on securities exchanges. These options are 
securities for purposes of the federal securities laws and bank-
ineligible securities for purposes of section 20 of the Glass-
Steagall Act, 12 U.S.C. 337. Similarly, this reference does not 
include acting as a dealer in any other instrument that is a bank-
ineligible security for purposes of section 20. Bank holding 
companies that deal in these instruments must do so in accordance 
with the Board's orders on dealing in bank-ineligible securities.
---------------------------------------------------------------------------

    (iii) Buying and selling bullion, and related activities. 
Buying, selling and storing bars, rounds, bullion, and coins of 
gold, silver, platinum, palladium, copper, and any other metal for 
the company's own account and the account of others, and providing 
incidental

[[Page 20780]]

services such as arranging for storage, safe custody, assaying, and 
shipment.
    (9) Management consulting and counseling activities.
    (i) Management consulting.
    (A) Providing management consulting advice: \7\
---------------------------------------------------------------------------

    \7\ In performing this activity, companies are not authorized to 
perform tasks or operations or provide services to client 
institutions either on a daily or continuing basis, except as 
necessary to instruct the client institution on how to perform such 
services for itself. See also the Board's interpretation of bank 
management consulting advice (12 CFR 225.131).
---------------------------------------------------------------------------

    (1) On any matter to unaffiliated depository institutions, 
including commercial banks, savings and loan associations, savings 
banks, credit unions, industrial banks, Morris Plan banks, 
cooperative banks, industrial loan companies, trust companies, and 
branches or agencies of foreign banks;
    (2) On any financial, economic, accounting, or audit matter to 
any other company.
    (B) Revenues derived from, or assets related to, a company's 
management consulting activities under this subparagraph will not be 
considered to be financial if the company:
    (1) Owns or controls, directly or indirectly, more than 5 
percent of the voting securities of the client institution; or
    (2) Allows a management official, as defined in 12 CFR 212.2(h), 
of the company or any of its affiliates to serve as a management 
official of the client institution, except where such interlocking 
relationship is permitted pursuant to an exemption permitted by the 
Board.
    (C) Up to 30 percent of a nonbank company's assets or revenues 
related to management consulting services provided to customers not 
described in paragraph (f)(9)(i)(A)(1) or regarding matters not 
described in paragraph (f)(9)(i)(A)(2) of this appendix will be 
included in the company's financial assets or revenues.
    (ii) Employee benefits consulting services. Providing consulting 
services to employee benefit, compensation and insurance plans, 
including designing plans, assisting in the implementation of plans, 
providing administrative services to plans, and developing employee 
communication programs for plans.
    (iii) Career counseling services. Providing career counseling 
services to:
    (A) A financial organization \8\ and individuals currently 
employed by, or recently displaced from, a financial organization;
---------------------------------------------------------------------------

    \8\ Financial organization refers to insured depository 
institution holding companies and their subsidiaries, other than 
nonbanking affiliates of diversified savings and loan holding 
companies that engage in activities not permissible under section 
4(c)(8) of the Bank Holding Company Act (12 U.S.C. 1842(c)(8)).
---------------------------------------------------------------------------

    (B) Individuals who are seeking employment at a financial 
organization; and
    (C) Individuals who are currently employed in or who seek 
positions in the finance, accounting, and audit departments of any 
company.
    (10) Support services.
    (i) Courier services. Providing courier services for:
    (A) Checks, commercial papers, documents, and written 
instruments (excluding currency or bearer-type negotiable 
instruments) that are exchanged among banks and financial 
institutions; and
    (B) Audit and accounting media of a banking or financial nature 
and other business records and documents used in processing such 
media.\9\
---------------------------------------------------------------------------

    \9\ See also the Board's interpretation on courier activities 
(12 CFR 225.129), which sets forth conditions for company entry into 
the activity.
---------------------------------------------------------------------------

    (ii) Printing and selling MICR-encoded items. Printing and 
selling checks and related documents, including corporate image 
checks, cash tickets, voucher checks, deposit slips, savings 
withdrawal packages, and other forms that require Magnetic Ink 
Character Recognition (MICR) encoding.
    (11) Insurance agency and underwriting.
    (i) Credit insurance. Acting as principal, agent, or broker for 
insurance (including home mortgage redemption insurance) that is:
    (A) Directly related to an extension of credit by the company or 
any of its subsidiaries; and
    (B) Limited to ensuring the repayment of the outstanding balance 
due on the extension of credit \10\ in the event of the death, 
disability, or involuntary unemployment of the debtor.
---------------------------------------------------------------------------

    \10\ Extension of credit includes direct loans to borrowers, 
loans purchased from other lenders, and leases of real or personal 
property so long as the leases are nonoperating and full-payout 
leases that meet the requirements of paragraph (f)(3) of this 
appendix.
---------------------------------------------------------------------------

    (ii) Finance company subsidiary. Acting as agent or broker for 
insurance directly related to an extension of credit by a finance 
company \11\ that is a subsidiary of a company, if:
---------------------------------------------------------------------------

    \11\ Finance company includes all non-deposit-taking financial 
institutions that engage in a significant degree of consumer lending 
(excluding lending secured by first mortgages) and all financial 
institutions specifically defined by individual states as finance 
companies and that engage in a significant degree of consumer 
lending.
---------------------------------------------------------------------------

    (A) The insurance is limited to ensuring repayment of the 
outstanding balance on such extension of credit in the event of loss 
or damage to any property used as collateral for the extension of 
credit; and
    (B) The extension of credit is not more than $10,000, or $25,000 
if it is to finance the purchase of a residential manufactured home 
\12\ and the credit is secured by the home; and
---------------------------------------------------------------------------

    \12\ These limitations increase at the end of each calendar 
year, beginning with 1982, by the percentage increase in the 
Consumer Price Index for Urban Wage Earners and Clerical Workers 
published by the Bureau of Labor Statistics.
---------------------------------------------------------------------------

    (C) The applicant commits to notify borrowers in writing that:
    (1) They are not required to purchase such insurance from the 
applicant;
    (2) Such insurance does not insure any interest of the borrower 
in the collateral; and
    (3) The applicant will accept more comprehensive property 
insurance in place of such single-interest insurance.
    (iii) Insurance in small towns. Engaging in any insurance agency 
activity in a place where the company or a subsidiary has a lending 
office and that:
    (A) Has a population not exceeding 5,000 (as shown in the 
preceding decennial census); or
    (B) Has inadequate insurance agency facilities, as determined by 
the Board, after notice and opportunity for hearing.
    (iv) Insurance-agency activities conducted on May 1, 1982. 
Engaging in any specific insurance-agency activity \13\ if the 
company, or subsidiary conducting the specific activity, conducted 
such activity on May 1, 1982, or received Board approval to conduct 
such activity on or before May 1, 1982.\14\ Revenues derived from, 
or assets related to, a company's specific insurance agency activity 
under this clause will be considered financial only if the company:
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    \13\ Nothing contained in this provision precludes a subsidiary 
that is authorized to engage in a specific insurance-agency activity 
under this clause from continuing to engage in the particular 
activity after merger with an affiliate, if the merger is for 
legitimate business purposes.
    \14\ For the purposes of this paragraph, activities engaged in 
on May 1, 1982, include activities carried on subsequently as the 
result of an application to engage in such activities pending before 
the Board on May 1, 1982, and approved subsequently by the Board or 
as the result of the acquisition by such company pursuant to a 
binding written contract entered into on or before May 1, 1982, of 
another company engaged in such activities at the time of the 
acquisition.
---------------------------------------------------------------------------

    (A) Engages in such specific insurance agency activity only at 
locations:
    (1) In the state in which the company has its principal place of 
business (as defined in 12 U.S.C. 1842(d));
    (2) In any state or states immediately adjacent to such state; 
and
    (3) In any state in which the specific insurance-agency activity 
was conducted (or was approved to be conducted) by such company or 
subsidiary thereof or by any other subsidiary of such company on May 
1, 1982; and
    (B) Provides other insurance coverages that may become available 
after May 1, 1982, so long as those coverages insure against the 
types of risks as (or are otherwise functionally equivalent to) 
coverages sold or approved to be sold on May 1, 1982, by the company 
or subsidiary.
    (v) Supervision of retail insurance agents. Supervising on 
behalf of insurance underwriters the activities of retail insurance 
agents who sell:
    (A) Fidelity insurance and property and casualty insurance on 
the real and personal property used in the operations of the company 
or its subsidiaries; and
    (B) Group insurance that protects the employees of the company 
or its subsidiaries.
    (vi) Small companies. Engaging in any insurance-agency activity 
if the company has total consolidated assets of $50 million or less. 
Revenues derived from, or assets related to, a company's insurance-
agency activities under this paragraph will be considered financial 
only if the company does not engage in the sale of life insurance or 
annuities except as provided in paragraphs (f)(11) (i) and (iii) of 
this appendix, and does not continue to engage in insurance-agency 
activities pursuant to this provision more than 90 days after the 
end of the quarterly reporting period in which total assets of the

[[Page 20781]]

company and its subsidiaries exceed $50 million.
    (vii) Insurance-agency activities conducted before 1971. 
Engaging in any insurance-agency activity performed at any location 
in the United States directly or indirectly by a company that was 
engaged in insurance-agency activities prior to January 1, 1971, as 
a consequence of approval by the Board prior to January 1, 1971.
    (12) Community development activities.
    (i) Financing and investment activities. Making equity and debt 
investments in corporations or projects designed primarily to 
promote community welfare, such as the economic rehabilitation and 
development of low-income areas by providing housing, services, or 
jobs for residents.
    (ii) Advisory activities. Providing advisory and related 
services for programs designed primarily to promote community 
welfare.
    (13) Money orders, savings bonds, and traveler's checks. The 
issuance and sale at retail of money orders and similar consumer-
type payment instruments; the sale of U.S. savings bonds; and the 
issuance and sale of traveler's checks.
    (14) Data processing.
    (i) Providing data processing, data storage and data 
transmission services, facilities (including data processing, data 
storage and data transmission hardware, software, documentation, or 
operating personnel), databases, advice, and access to such 
services, facilities, or data-bases by any technological means, if 
the data to be processed, stored or furnished are financial, banking 
or economic.
    (ii) Up to 30 percent of a nonbank company's assets or revenues 
related to providing general purpose hardware in connection with 
providing data processing products or services described in 
paragraph (f)(14)(i) of this appendix will be included in the 
company's financial assets or revenues.
    (15) Administrative services. Providing administrative and other 
services to mutual funds.
    (16) Securities exchange. Owning shares of a securities 
exchange.
    (17) Certification authority. Acting as a certification 
authority for digital signatures and authenticating the identity of 
persons conducting financial and nonfinancial transactions.
    (18) Employment histories. 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.
    (19) Check cashing and wire transmission. Check cashing and wire 
transmission services.
    (20) Services offered in connection with banking services. 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.
    (21) Real estate title abstracting.
    (g) Engaging, in the United States, in any activity that a bank 
holding company may engage in outside of the United States; and the 
Board has determined, under regulations prescribed or 
interpretations issued pursuant to section 4(c)(13) of the BHC Act 
(12 U.S.C. 1843(c)(13)) to be usual in connection with the 
transaction of banking or other financial operations abroad. Those 
activities include--
    (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 
company to control the person to which the services are provided.
    (2) Operating a travel agency in connection with financial 
services.
    (3) Organizing, sponsoring, and managing a mutual fund.
    (4) Commercial banking and other banking activities.
    (h) Directly, or indirectly acquiring or controlling, whether as 
principal, on behalf of 1 or more entities, or otherwise, shares, 
assets, or ownership interests (including debt or equity securities, 
partnership interests, trust certificates, or other instruments 
representing ownership) of a company or other entity, whether or not 
constituting control of such company or entity, engaged in any 
activity not financial in nature as defined in this appendix if:
    (1) Such shares, assets, or ownership interests are acquired and 
held as part of a bona fide underwriting or merchant or investment 
banking activity, including investment activities engaged in for the 
purpose of appreciation and ultimate resale or disposition of the 
investment;
    (2) Such shares, assets, or ownership interests are held for a 
period of time to enable the sale or disposition thereof on a 
reasonable basis consistent with the financial viability of the 
activities described in paragraph (h)(1) of this appendix; and
    (3) During the period such shares, assets, or ownership 
interests are held, the company does not routinely manage or operate 
such company or entity except as may be necessary or required to 
obtain a reasonable return on investment upon resale or disposition.
    (i) Directly or indirectly acquiring or controlling, whether as 
principal, on behalf of 1 or more entities, or otherwise, shares, 
assets, or ownership interests (including debt or equity securities, 
partnership interests, trust certificates or other instruments 
representing ownership) of a company or other entity, whether or not 
constituting control of such company or entity, engaged in any 
activity not financial in nature as defined in this appendix if--
    (1) Such shares, assets, or ownership interests are acquired and 
held by an insurance company that is predominantly engaged in 
underwriting life, accident and health, or property and casualty 
insurance (other than credit-related insurance) or providing and 
issuing annuities;
    (2) Such shares, assets, or ownership interests represent an 
investment made in the ordinary course of business of such insurance 
company in accordance with relevant state law governing such 
investments; and
    (3) During the period such shares, assets, or ownership 
interests are held, the company does not routinely manage or operate 
such company except as may be necessary or required to obtain a 
reasonable return on investment.
    (j) Lending, exchanging, transferring, investing for others, or 
safeguarding financial assets other than money or securities.
    (k) Providing any device or other instrumentality for 
transferring money or other financial assets.
    (l) Arranging, effecting, or facilitating financial transactions 
for the account of third parties.

    By order of the Board of Governors of the Federal Reserve 
System, March 29, 2013.
Robert deV. Frierson,
Secretary of the Board.
[FR Doc. 2013-07688 Filed 4-4-13; 8:45 am]
BILLING CODE 6210-01-P