FED Finalizes Regulation to Determine Control of Banking Entity
FED is adopting a final rule to revise its regulations related to determinations of whether a company has the ability to exercise a controlling influence over another company for purposes of the Bank Holding Company Act or the Home Owners’ Loan Act. The final rule includes certain targeted adjustments to the historical practice of FED. The final rule will be effective from April 01, 2020. FED also published a chart that shows how different combinations of the factors would or would not result in control. In a statement supporting this rule, the FED Governor Lael Brainard said that the rule substantially increases the transparency and clarity of the control framework.
FED had proposed this rule in April last year and this final rule is largely consistent with the proposal, though FED has made certain changes to the proposed rule. The rule establishes a comprehensive and public framework to determine when a company controls a bank or a bank controls a company. The framework uses several factors 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 final rule should help to facilitate permissible investments in banking organizations and by banking organizations.
As indicated in the proposal, the final rule contains certain targeted adjustments from the current practice in light of FED's experience administering the statute. These changes are generally technical in nature rather than fundamental changes to FED's substantive standards for controlling influence. As the final rule is generally consistent with current practice, significant changes in outcomes are not anticipated and, therefore, no major impact on the banking industry is expected. Importantly, the final rule significantly improves the transparency and predictability around questions of controlling influence. Under the final rule, a company would be presumed to control another company when:
- The first company controls 5% or more of any class of voting securities of the second company and has business relationships with the second company that generate in the aggregate 10% or more of the total annual revenues or expenses of the second company
- The first company controls 10% or more of any class of voting securities of the second company and has business relationships with the second company that generate in the aggregate 5% or more of the total annual revenues or expenses of the second company
- The first company controls 15% or more of any class of voting securities of the second company and has business relationships with the second company that generate in the aggregate 2% or more of the total annual revenues or expenses of the second company
Related Links
Effective Date: April 01, 2020
Keywords: Americas, US, Banking, Control of Banking Organization, Regulation Y, Regulation ll, FED
Previous Article
EC Updates List of Appropriately Diversified Stock Indices Under CRRRelated Articles
BoE Clarifies Approach to Treatment of Payment Holidays on Form PL
BoE published a statistical notice (Notice 2020/9) explaining the approach for treatment of payment holidays on the profit and loss return or Form PL.
BoE Provides Reporting Update on Form AS and Form FV
BoE updated the known issues document for the statistical reporting Forms AS and FV.
FED Announces Capital Requirements for Large Banks
FED announced individual capital requirements for 34 large banks and these requirements go into effect on October 01, 2020.
SRB Publishes Guidance on Implementation of Bail-In Tool
SRB published a set of documents to give operational guidance to banks on implementation of the bail-in tool.
BIS Publishes Update on G20 TechSprint Initiative
BIS published an update on the G20 TechSprint Initiative, which was launched in April 2020 and aims to highlight the potential for technologies to resolve regulatory compliance (regtech) and supervisory (suptech) challenges.
OSFI Provides Update on Implementation of IFRS 17 in Canada
OSFI published a letter that provides an update on the milestones for the implementation of the IFRS 17 standard on insurance contracts.
EBA Provides Clarity on Implementation of Guidance on COVID Reporting
EBA updated the report on the implementation of selected COVID-19 policies.
FSI Note Discusses Challenges Associated with COVID Relief Measures
The Financial Stability Institute (FSI) of BIS published a brief note that examines the supervisory challenges associated with certain temporary regulatory relief measures introduced by BCBS and prudential authorities in response to the COVID-19 pandemic.
BCBS Consults on Principles for Operational Risk and Resilience
BCBS is consulting on the principles for operational resilience and the revisions to the principles for sound management of operational risk for banks.
BoE Updates Template and Definitions for Form ER
BoE updated the reporting template for Form ER as well as the Form ER definitions, which contain guidance on the methodology to be used in calculating annualized interest rates.
