April 23, 2019

FED proposed to simplify and increase the transparency of its rules for determining control of a banking organization. If a company has control over a banking organization, the company generally becomes subject to FED rules and regulations. The proposal would set forth a comprehensive regulatory framework for control determinations and request comments on the framework until 60 days after the publication of this proposal in the Federal Register.

Over time, FED has issued public and private interpretations on the topic of control, but banking organizations and their investors often remain uncertain about whether a proposed investment is controlling. The proposal lays out several factors and thresholds that FED will use to determine if a company has control over a bank. The key factors include the company's total voting and non-voting equity investment in the bank; director, officer, and employee overlaps between the company and the bank; and the scope of business relationships between the company and the bank. The proposal clearly describes what combination of those factors would and would not trigger control.

By codifying the presumptions in Regulation Y and Regulation LL, the rules of FED would provide substantial additional transparency on the types of relationships that the FED would view as supporting a determination that one company controls another company. The proposed presumptions generally would be consistent with the historical practice of FED with respect to the types of relationships that raise, or do not raise, significant controlling influence concerns. Several of the proposed presumptions, however, would represent targeted adjustments relative to the historical practice of FED. Finally, the proposal would include various definitions and ancillary rules to ensure that the application of the proposed presumptions is clear, transparent, and consistent.

The proposal would reduce complexity and burden for banking organizations and their investors; it is also expected to make it easier for banks, particularly community banks, to raise capital to support lending and investment. FED also published a chart that shows how different combinations of the factors would or would not result in control. 

 

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Comment Due Date: FR + 60 Days

Keywords: Americas, US, Banking, Control of Banking Organization, Regulation Y, Regulation II, Community Banks, FED

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