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
Effective Date: April 01, 2020
Keywords: Americas, US, Banking, Control of Banking Organization, Regulation Y, Regulation ll, FED
Previous ArticleEC Updates List of Appropriately Diversified Stock Indices Under CRR
The three European Supervisory Authorities (ESAs) issued a letter to inform about delay in the Sustainable Finance Disclosure Regulation (SFDR) mandate, along with a Call for Evidence on greenwashing practices.
The Financial Stability Board (FSB) and the Network for Greening the Financial System (NGFS) published a joint report that outlines the initial findings from climate scenario analyses undertaken by financial authorities to assess climate-related financial risks.
The Financial Stability Board (FSB) published a letter intended for the G20 leaders, highlighting the work that it will undertake under the Indian G20 Presidency in 2023 to strengthen resilience of the financial system.
The International Sustainability Standards Board (ISSB) of the IFRS Foundations made several announcements at COP27 and with respect to its work on the sustainability standards.
The International Organization for Securities Commissions (IOSCO), at COP27, outlined the regulatory priorities for sustainability disclosures, mitigation of greenwashing, and promotion of integrity in carbon markets.
The European Banking Authority (EBA) issued a statement in the context of COP27, clarified the operationalization of intermediate EU parent undertakings (IPUs) of third-country groups
The European Union has finalized and published, in the Official Journal of the European Union, a set of 13 Delegated and Implementing Regulations applicable to the European crowdfunding service providers.
The Office of the Superintendent of Financial Institutions (OSFI) published an annual report on its activities, a report on forward-looking work.
The Australian Prudential Regulation Authority (APRA) finalized amendments to the capital framework, announced a review of the prudential framework for groups.
The Bank for International Settlements (BIS) Innovation Hubs and several central banks are working together on various central bank digital currency (CBDC) pilots.