[Federal Register Volume 59, Number 211 (Wednesday, November 2, 1994)]
[Rules and Regulations]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-27058]
[[Page Unknown]]
[Federal Register: November 2, 1994]
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FEDERAL RESERVE SYSTEM
12 CFR Parts 225 and 262
[Regulation Y; Docket No. R-0853]
Applications Under Regulation Y
AGENCY: Board of Governors of the Federal Reserve System.
ACTION: Interim rule with request for comments.
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SUMMARY: These rules implement the streamlined notice procedure
recently enacted in Section 319 of the Riegle Community Development and
Regulatory Improvement Act of 1994 (``Riegle Act'') for the formation
of a new bank holding company that results from a corporate
reorganization of a bank by the current shareholders of the bank. These
rules also implement section 321 of the Riegle Act, which amends the
Bank Holding Company Act and the Bank Merger Act to authorize the Board
to shorten the post-approval waiting period for bank acquisitions and
mergers (during which time the United States Attorney General may
review the competitive effects of a proposal approved by the Board)
from 30 to 15 days with the consent of the United States Attorney
General. Because the procedures prescribed by section 319 and section
321 are effective immediately, the Board has proposed the following as
an interim rule that will take effect immediately. The Board is seeking
comments on this interim rule, and will amend the rule as needed to
address the comments received. The Board also is currently developing
additional initiatives to reduce the regulatory burden associated with
its application and notice procedures, and invites comment on any
suggestions in furtherance of these initiatives.
DATES: Interim Rule effective on November 2, 1994; comments must be
received by December 5, 1994.
ADDRESSES: Comments should refer to Docket No. R-0853 and may be mailed
to William W. Wiles, Secretary, Board of Governors of the Federal
Reserve System, 20th Street and Constitution Avenue, NW, Washington, DC
20551. Comments also may be delivered to Room B-2222 of the Eccles
Building between 8:45 a.m. and 5:15 p.m. weekdays, or to the Board's
Security Control Room inside the Eccles Building courtyard on 20th
Street (between Constitution Avenue and C Street, NW) anytime. Comments
may be inspected in room MP-500 of the Martin Building between 9 a.m.
and 5 p.m. weekdays, except as provided in 12 CFR 261.8 of the Board's
rules regarding availability of information.
FOR FURTHER INFORMATION CONTACT: Scott G. Alvarez, Associate General
Counsel (202/452-3583), or Terence F. Browne, Senior Attorney (202/452-
3707), Legal Division; or Don E. Kline, Associate Director (202/452-
3421), Nicholas A. Kalambokidis, Supervisory Financial Analyst (202/
452-3830), or Larry R. Cunningham, Senior Financial Analyst (202/452-
2701), Division of Banking Supervision and Regulation of the Board of
Governors of the Federal Reserve System. For the hearing impaired only,
Telecommunications Device for the Deaf (TDD), Dorothea Thompson (202/
452-3544).
SUPPLEMENTARY INFORMATION: Section 3(a) of the Bank Holding Company Act
of 1956 (12 U.S.C. 1842(a)) (``BHC Act'') requires Federal Reserve
Board approval prior to consummating certain transactions resulting in
the formation of a bank holding company, or in the acquisition by a
bank holding company of shares or control of a bank, subject to certain
exceptions. Section 319 of the Riegle Community Development and
Regulatory Improvement Act of 1994 (Pub. L. No. 103-325, section 319,
108 Stat. 2160, 2224 (1994)(``Section 319'')) amends section 3 of the
BHC Act to establish a notice procedure for the formation of a new bank
holding company resulting from a corporate reorganization that involves
substantially the same shareholders.\1\ In connection with section 319,
section 320 of the Riegle Act provides an exemption from the
registration requirements of the Securities Act of 1933 for securities
issued by a bank holding company pursuant to such a reorganization.
\1\Section 319 also amends section 5(d)(3) of the Federal
Deposit Insurance Act (12 U.S.C. 1815(d)(3))--commonly referred to
as the ``Oakar Amendment''--to eliminate the requirement for prior
Board approval of transactions by banks owned by holding companies
to merge with thrift institutions. Under the Riegle Act, Oakar
transactions continue to require the prior approval of the
appropriate Federal banking agency for the acquiring institution,
and all Oakar transactions must comply with section 3(d) of the BHC
Act, the ``Douglas Amendment.'' No amendments to the Board's
regulations are needed to implement these amendments to section
5(d)(3).
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In addition, section 321 of the Riegle Act (Pub. L. No. 103-325,
section 321, 108 Stat. 2160, 2226 (1994)(``Section 321'') permits the
Board, with the consent of the U.S. Attorney General, to shorten the
post-approval waiting period for bank acquisitions and mergers from 30
days to 15 days. The interim rule implement the provisions enacted in
sections 319 and 321 of the Riegle Act. Comment is invited on all
aspects of these proposals.
Formation of a New Bank Holding Company Under Section 319
By its terms, the notice procedure added by section 319\2\ applies
only if certain conditions are met. Specifically, the formation of a
new bank holding company may be consummated 30 days after providing
written notice to the appropriate Federal Reserve Bank if: (1) The
shareholders of the bank will acquire, as a result of the
reorganization, the shares of the newly formed bank holding company in
substantially the same proportional interest as they held in the bank;
(2) the bank holding company would meet, and its resulting subsidiary
bank would meet, certain financial and capital standards; (3) the bank
holding company would not, as a result of the reorganization, acquire
other banking or nonbanking interests; and (4) during the 30-day notice
period, the Reserve Bank or the Board does not object to the proposal.
\2\Any application to organize a bank holding company that was
filed with a Reserve Bank prior to September 23, 1994 will continue
to be processed under the existing rules.
Substantially the Same Shareholders
Under the interim rule, the requirement that shareholders of the
bank acquire ``substantially the same share interest'' in the newly
formed bank holding company would be met by proposals in which the
shareholder or shareholders who lawfully control at least 80 percent of
the shares of the bank at the time the notice is filed would acquire,
immediately after the reorganization, at least 80 percent of the shares
of the holding company in substantially the same proportion.
By the terms of Section 319, allowance is made for changes in
shareholders' interests resulting from the exercise of dissenting
shareholders' rights under State or Federal law. Accordingly, under the
interim rule, a shareholder of the bank will be considered to have
substantially the same proportional interest in the holding company
(notwithstanding a change in the percentage of shares controlled by the
shareholder) if the shareholder interest increases, on a pro rata
basis, as a result of either the redemption by the bank or bank holding
company of shares from dissenting shareholders, or as a result of the
acquisition of shares of dissenting shareholders by the remaining
shareholders.
However, this notice procedure would not be available in cases in
which any shareholder or group of shareholders acting in concert would,
following the reorganization, own or control 10 percent or more of any
class of voting shares of the bank holding company unless that
shareholder or group of shareholders was authorized, after review under
the Change in Bank Control Act of 1978 (12 U.S.C. 1817(j)) by the
appropriate Federal banking agency for the bank, to own or control 10
percent or more of any class of voting shares of the bank. Similarly,
this procedure is not available in cases in which the exercise of
dissenting shareholders' rights would cause a company that is not a
bank holding company (other than the company in formation) to be
required to register as a bank holding company. This procedure also is
not available for the formation of a bank holding company organized in
mutual form.
The Board seeks comment on other alternative formulations
consistent with the statutory mandate that the reorganization involve
substantially the same shareholders.
Financial Standards
Section 319 also establishes certain financial thresholds that must
be satisfied to qualify for the abbreviated notice procedure. In
particular, the bank to be reorganized must, at the time the notice is
filed, be ``adequately capitalized,'' as this term is defined in
section 38 of the Federal Deposit Insurance Act. See 12 U.S.C. 1831o.
In addition, Section 319 requires that the bank holding company
resulting from the reorganization meet any ``capital and other
financial standards'' established by the Board.
In the interim rule, the Board has established three requirements
designed to identify reorganization proposals that do not raise
financial or supervisory concerns that would benefit from review and
explanation through an application process rather than an abbreviated
notice procedure. Under the interim rule, a proposal to form a new one-
bank holding company would qualify for the abbreviated notice
procedures established in Section 319 if: (1) The bank has received at
least a composite ``satisfactory'' rating at its most recent
examination, in the event that the bank has been subject to
examination; (2) the amount of debt that the bank holding company would
assume at the time of the reorganization, and the proposed means of
retiring this debt, would not place undue burden on the holding company
or its subsidiary on a pro forma basis;\3\ and (3) at the time of the
reorganization, neither the bank nor any of its officers, directors or
shareholders is involved in any unresolved supervisory or enforcement
matters with any appropriate Federal banking agency.
\3\For a banking organization with consolidated assets, on a pro
forma basis, of less than $150 million (other than a banking
organization that would control a de novo bank), this requirement
would be satisfied if the proposal would comply with the Board's
policy statement on small one-bank holding company formations (12
CFR part 225, appendix C).
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Section 319 provides that this abbreviated notice procedure is only
available to a bank holding company that would not acquire any
additional banks or any nonbanking interests as part of the
reorganization.
Contents of Notice
To begin the notice period under the interim rule, the notificant
organization must submit to the appropriate Reserve Bank a written
notice that includes: (1) Certification that the requirements of
Section 319 and the Board's implementing rule are met by the proposal;
(2) a list of the shareholders of the bank prior to the reorganization
and of the holding company following the reorganization, identifying
the percentage of shares held by each shareholder in the bank and
proposed to be held in the new holding company; (3) a description of
the resulting management of the proposed bank holding company and its
subsidiary bank, including (i) biographical information regarding any
officers, directors or shareholders of the resulting bank holding
company who were not senior officers or directors of the bank prior to
the reorganization, and (ii) a detailed history of the involvement of
any officer, director or shareholder of the resulting bank holding
company in any administrative or criminal proceeding; (4) pro forma
financial statements for the bank holding company, and a description of
the amount, source and terms of debt, if any, that the bank holding
company proposes to incur, and information regarding the sources and
timing for debt service and retirement; and (5) verification that
notice of the proposal has been published in a newspaper of general
circulation in the community in which the bank is located that provides
an opportunity for interested persons to comment on the notice for a
period of at least 15 calendar days.
As indicated above, the interim rule requires that the applicant
publish notice of the proposed reorganization and invite public comment
for a period of at least 15 days. This request for public comment is
consistent with the Board's practice of publishing notice of all bank
holding company formations and bank expansion proposals so that the
public may comment in particular on the bank's record of serving the
convenience and needs of the community under the Community Reinvestment
Act.
Objections to Notices
Within 7 calendar days of receipt of a notice containing all the
information required under this interim regulation, the appropriate
Reserve Bank will provide a written acknowledgement of receipt of the
notice indicating that the transaction may be consummated following the
30th calendar day after the date the notice was received by the Reserve
Bank unless the Reserve Bank or the Board objects to the proposal
during that time. The Reserve Bank may provide written notice of
approval of the reorganization at an earlier time during the notice
period.
If during the notice period the Board or the Reserve Bank objects
to the proposal, the bank holding company must file an application
under section 3 of the BHC Act.\4\ In this case, the notificant will
immediately be notified of the reason for the objection, and of any
additional information that may be needed to complete an application.
\4\See 12 CFR 225.14. If the Reserve Bank or Board believes that
issues might readily be resolved within the notice period without
having to issue a formal objection, the Reserve Bank or Board may
request additional information during the notice period to
supplement the notice.
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Shortening of Post-Approval Waiting Period Under Section 321
Currently, section 11(b)(1) of the BHC Act (12 U.S.C. 1849(b)(1))
prohibits a bank holding company that has received approval for a
transaction under section 3 of the BHC Act (other than transactions
involving a probable bank failure or an emergency) from consummating
the transaction prior to the thirtieth day following Board approval of
the proposal in order to provide the United States Attorney General
time to review the transaction for any adverse effects on competition
in banking or the concentration of banking resources. The Bank Merger
Act contains a similar provision applying post-approval waiting period
to bank merger proposals. See 12 U.S.C. 1828(c)(6).
Because Section 319 creates an exception from the application and
approval process established by section 3 of the BHC Act, a notificant
who has met the criteria of Section 319 and the interim rule does not
appear to be subject to the post-approval waiting period established
under section 11 of the BHC Act.
With regard to other acquisitions under section 3 of the BHC Act or
under the Bank Merger Act, section 321 of the Riegle Act (``Section
321'') authorizes the Board to shorten the post-approval waiting period
in any case to a period of not less than 15 days, provided the Board
has received no adverse comment from the Attorney General relating to
competitive factors and the Attorney General concurs with the Board's
decision to shorten the waiting period. Section 321 does not affect
processing of applications involving probable bank failures or
emergencies. The interim rule incorporates these revisions to the
Board's Regulation Y. The Board is currently discussing with the U.S.
Department of Justice the types of cases that may qualify for this
shortened post-approval waiting period, and invites public comment on
the types of cases where this would be appropriate.
As described above, the Board has adopted the following interim
rule which shall be effective immediately, and invites public comment
on all aspects of this interim rule. The Board also invites suggestions
on other means of reducing the regulatory burden associated with its
application and notices procedures.
Regulatory Flexibility Act Analysis
Pursuant to section 605(b) of the Regulatory Flexibility Act (5
U.S.C. 601 et seq.), the Board does not believe that these changes will
have a significant adverse economic impact on a substantial number of
small entities. This interim rule will reduce the regulatory burden
imposed by the Board's procedures on small bank holding companies in
formation, and the Board is inviting public comment on additional ways
to reduce regulatory burden.
Paperwork Reduction Act Analysis
No collections of information pursuant to section 3504(h) of the
Paperwork Reduction Act (44 U.S.C. 3501 et seq.) are contained in these
changes, and comment is invited on a proposal that would reduce the
current information collection requirements imposed in connection with
certain applications.
List of Subjects
12 CFR Part 225
Administrative practice and procedure, Banks, banking, Federal
Reserve System, Holding companies, Reporting and recordkeeping
requirements, Securities.
12 CFR Part 262
Administrative practice and procedure, Banks, banking, Federal
Reserve System.
For the reasons set forth in the preamble, the Board amends 12 CFR
parts 225 and 262 as follows:
PART 225--BANK HOLDING COMPANIES AND CHANGE IN BANK CONTROL
(REGULATION Y)
1. The authority citation for part 225 continues to read as
follows:
Authority: 12 U.S.C. 1817(j)(13), 1818, 1831i, 1831p-1,
1843(c)(8), 1844(b), 1972(1), 3106, 3108, 3907, 3909, 3310, and
3331-3351.
2. In Sec. 225.11, the introductory text is revised to read as
follows:
Sec. 225.11 Transactions requiring Board approval.
The following transactions require an application for the Board's
prior approval under section 3 of the Bank Holding Company Act except
as exempted under Sec. 225.12 or as otherwise covered by Sec. 225.15 of
this part:
* * * * *
3. In Sec. 225.14, paragraph (i) is revised to read as follows:
Sec. 225.14 Procedures for applications, notices, and hearings.
* * * * *
(i) Waiting period. A transaction approved under this subpart,
other than a transaction approved under Sec. 225.15, shall not be
consummated until 30 days after the date of approval of the
application, except that a transaction may be consummated:
(1) Immediately upon approval, in the event that the Board has
determined under paragraph (h) of this section that the application
involves a probable bank failure;
(2) On or after the fifth calendar day following the date of
approval, in the event that the Board has determined under paragraph
(h) of this section that an emergency exists requiring expeditious
action; or,
(3) On or after the fifteenth calendar day following the date of
approval, in the event that the Board has not received any adverse
comments from the United States Attorney General relating to the
competitive factors and the Attorney General has consented to such
shorter waiting period.
4. A new Sec. 225.15 is added under Subpart B to read as follows:
Sec. 225.15 Notice Procedure for One-Bank Holding Company Formations.
(a) Transactions which qualify under this section. An acquisition
by a company of control of a bank may be consummated 30 days after
providing notice to the appropriate Reserve Bank in accordance with
paragraph (b) of this section, provided that all of the following
conditions are met:
(1) The shareholder or shareholders who control at least 80 percent
of the shares of the bank would control, immediately after the
reorganization, at least 80 percent of the shares of the holding
company in substantially the same proportion, except for changes in
shareholders' interests resulting from the exercise of dissenting
shareholders' rights under State or Federal law;5
\5\A shareholder of a bank in reorganization will be considered
to have the same proportional interest in the holding company if the
shareholder interest increases, on a pro rata basis, as a result of
either the redemption of shares from dissenting shareholders by the
bank or bank holding company or the acquisition of shares of
dissenting shareholders by the remaining shareholders.
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(2) No shareholder or group of shareholders acting in concert
would, following the reorganization, own or control 10 percent or more
of any class of voting shares of the bank holding company unless that
shareholder or group of shareholders was authorized, after review under
the Change in Bank Control Act of 1978 (12 U.S.C. 1817(j)) by the
appropriate Federal banking agency for the bank, to own or control 10
percent or more of any class of voting shares of the bank;6
\6\This procedure is not available in cases in which the
exercise of dissenting shareholders' rights would cause a company
that is not a bank holding company (other than the company in
formation) to be required to register as a bank holding company.
This procedure also is not available for the formation of a bank
holding company organized in mutual form.
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(3) The bank is adequately capitalized (as defined in section 38 of
the Federal Deposit Insurance Act (12 U.S.C. 1831o));
(4) The bank has received at least a composite ``satisfactory''
rating at its most recent examination, in the event that the bank has
been subject to an examination;
(5) At the time of the reorganization, neither the bank nor any of
its officers, directors or shareholders is involved in any unresolved
supervisory or enforcement matters with any appropriate Federal banking
agency;
(6) The company demonstrates that any debt that it would incur at
the time of the reorganization, and the proposed means of retiring this
debt, would not place undue burden on the holding company or its
subsidiary on a pro forma basis;7
\7\For a banking organization with consolidated assets, on a pro
forma basis, of less than $150 million (other than a banking
organization that would control a de novo bank), this requirement
would be satisfied if the proposal would comply with the Board's
policy statement on small one-bank holding company formations (12
CFR Part 225, Appendix C).
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(7) The holding company would not, as a result of the
reorganization, acquire control of any additional bank or engage in any
activities other than those of managing and controlling banks; and
(8) During this period, neither the appropriate Reserve Bank nor
the Board has objected to the proposal or required the filing of an
application under Sec. 225.14 of this subpart.
(b) Contents of notice. A notice filed under this subsection must
include:
(1) Certification by the notificant's board of directors that the
requirements of 12 U.S.C. 1842(a)(C) and this section are met by the
proposal;
(2) A list identifying the shareholders of the bank prior to the
reorganization and of the holding company following the reorganization,
and specifying the percentage of shares held by each shareholder in the
bank and proposed to be held in the new holding company;
(3) A description of the resulting management of the proposed bank
holding company and its subsidiary bank, including:
(i) Biographical information regarding any senior officers and
directors of the resulting bank holding company who were not senior
officers or directors of the bank prior to the reorganization; and,
(ii) A detailed history of the involvement of any officer, director
or shareholder of the resulting bank holding company in any
administrative or criminal proceeding;
(4) Pro forma financial statements for the holding company, and a
description of the amount, source and terms of debt, if any, that the
bank holding company proposes to incur, and information regarding the
sources and timing for debt service and retirement; and,
(5) Verification that notice of the proposal has been published in
a newspaper of general circulation in the community in which the bank
is located that provides an opportunity for interested persons to
comment on the notice for a period of at least 15 calendar days.
(c) Acknowledgement of notice. Within 7 calendar days following
receipt of a notice under this section, the Reserve Bank shall provide
the notificant with a written acknowledgement of receipt of the notice.
This written acknowledgment shall indicate that the transaction
described in the notice may be consummated on the 30th calendar day
after the date of receipt of the notice if the Reserve Bank or the
Board has not objected to the proposal during that time.
(d) Application required upon objection. The Reserve Bank or the
Board may object to a proposal during the notice period by providing
the bank holding company with a written explanation of the reasons for
the objection. In such case, the bank holding company may file an
application for prior approval of the proposal pursuant to section
225.14 of this subpart.
PART 262--RULES OF PROCEDURE
1. The authority citation for part 262 continues to read as
follows:
Authority: 5 U.S.C. 552, 12 U.S.C. 321, 1828(c), and 1842.
2. In Sec. 262.3, paragraph (b)(1)(i)(D) is revised to read as
follows:
Sec. 262.3 Applications.
* * * * *
(b) * * *
(1)(i) * * *
(D) To become a bank holding company (except as provided in 12 CFR
225.15), and
* * * * *
By order of the Board of Governors of the Federal Reserve
System, effective October 26, 1994.
William W. Wiles,
Secretary of the Board.
[FR Doc. 94-27058 Filed 11-01-94; 8:45 am]
BILLING CODE 6210-01-P
