Common Questions and Answers
on the Amendments to Regulation Y
Common Questions and Answers on the Amendments to Regulation
Y of the Federal Reserve Board
Effective Date: April 21, 1997
Prepared by: Federal Reserve Bank of San Francisco, April 1997
I. Background
II. New Procedures
III. Other Information Regarding Regulation Y
I. Background
1. What is Regulation Y?
Regulation Y governs the corporate practices of bank holding
companies and certain practices of state-member banks. Regulation Y
also describes transactions for which bank holding companies must seek
and receive the Federal Reserve's approval. Common transactions requiring
approval include:
- When a bank holding company acquires a bank or merges with another
bank holding company;
- When a bank holding company engages in a nonbanking activity,
either directly or through a subsidiary;
- When an individual (or group of individuals) acquires control
of a bank holding company or state-member bank;
- When a bank holding company or state-member bank in troubled
condition appoints a new senior officer or director.
2. Why did the Federal Reserve streamline Regulation Y?
The Federal Reserve amended Regulation Y as part of a broad
effort to "risk-focus" the supervisory process and to reduce
the regulatory burden on well-run organizations. The Federal Reserve
emphasized two important principles in developing these amendments:
First, burden and delay will be reduced for well-run bank holding
companies that meet objective and verifiable standards; and
Second, the applications process will focus exclusively on an analysis
of the specific proposal and will no longer be used as a vehicle to
comprehensively analyze supervisory and compliance issues not related
to the transaction. The supervisory process, including on-site inspections,
is a more appropriate forum for review of matters not directly related
to a specific transaction.
3. What actual changes were made by the Board to streamline
regulatory requirements?
The Board reduced the information necessary for the completion
and filing of applications. Additionally, applications procedures were
streamlined for well-managed institutions. In some cases, application
requirements have been eliminated entirely. Many restrictions previously
applicable to the conduct of nonbanking activities were also removed.
II. New Procedures
4. How does the new expedited procedure for banking
acquisitions work?
Under the new procedure, a qualifying bank holding company
may publish the required newspaper notice up to 15 days in advance of
submission of the formal notice to the Federal Reserve. The public comment
period remains 30 days and, absent a substantive and timely protest,
approval is anticipated within 3 to 5 business days after expiration
of the comment period. In other words, the actual time the Reserve Bank
takes to process the notice can be as short as 18 days (30 + 3 - 15).
A notice submitted by a qualifying bank holding company is generally
expected to be approved under the expedited procedure. If, however,
a significant issue is identified, the Federal Reserve may review
the issue in greater depth by redesignating the notice as an application.
This type of action will only occur under limited circumstances, such
as the receipt of a substantive and timely protest.
5. How does the new expedited procedure for nonbanking acquisitions
work?
A qualifying bank holding company may immediately engage de
novo in any nonbanking activity that the Board has determined
to be permissible. Within ten days after commencing the activity, the
qualifying bank holding company must notify the Reserve Bank. No prior
approval or notice is required.
For a qualifying bank holding company, an acquisition of an existing
company engaged in a permissible activity may be consummated after
providing a twelve day prior notice to the Reserve Bank.
Other transactions, including those filed by non-qualifying organizations
or involving activities that have not already been determined by the
Board to be permissible, are subject to a thirty-day prior notice
period.
6. Who can take advantage of the new, streamlined processing?
Well-managed organizations whose transactions meet guidelines
with respect to size, competitive effects, community convenience and
needs and legality. These items are discussed in more detail in numbers
7, 8, and 9 below.
7. What is a well-managed banking organization?
A well-managed organization meets well-capitalized standards,
is satisfactorily rated, and is not, and has not recently been, the
subject of a formal supervisory action. (To be satisfactorily rated
both the composite and management ratings must be satisfactory, as well
as the compliance rating if such a rating is assigned.)
8. In addition to being well-managed, what other criteria
must be met in order for a bank transaction to qualify for expedited
processing?
The other qualifying criteria for bank acquisitions are:
- Compliance with convenience and needs criteria, including satisfactory
Community Reinvestment Act records;
- No substantive, timely and adverse public comments;
- Pro forma deposit market-share of less than 35
percent and no significant changes in market concentration;
- Target banking organization has total risk-weighted assets of
less than $7.5 billion and, when combined with all other expedited
transactions within the past year, comprises less than 35 percent
of pro forma risk-weighted assets; (Note: The 35 percent
size limitation does not apply if the acquiring bank holding company,
following consummation of the transaction, would have consolidated
risk-weighted assets of less than $300 million.)
- Compliance with interstate banking statutes; and
- In the case of a foreign bank, compliance with comprehensive
home-country supervision requirements.
9. For well-managed bank holding companies, what are the other
qualifying criteria for nonbank transactions?
The other qualifying criteria for nonbank transactions are:
- The activity has been previously determined by regulation or
order to be permissible;
- In the case of an acquisition, a pro forma market
share of less than 35 percent and no significant change in market
concentration; and
- Target company has total risk-weighted assets of less than $7.5
billion and, when combined with all other expedited transactions
within the past year, comprises less than 35 percent of pro
forma risk-weighted assets; also, gross consideration paid
must be less than 15 percent of the filer's Tier One capital. (Note:
The 35 percent size limitation does not apply if the acquiring bank
holding company, following consummation of the transaction, would
have consolidated risk-weighted assets of less than $300 million.)
III. Other Information Regarding Regulation
Y
10. What proportion of acquisitions actually meet the
criteria for expedited processing?
We estimate that about half of the bank and nonbank acquisition
proposals will qualify for expedited processing.
11. What if a transaction does not qualify for expedited processing?
Non-qualifying transactions typically require somewhat more
in-depth review, but will also be processed more quickly and with reduced
informational requirements than in the past. Specifically, the pre-acceptance
review period (historically averaging 25 days) was eliminated. From
the date of filing, an applicant can generally expect that any application
will be acted upon within 30 to 60 days.
12. What other application and notice requirements have been
simplified in the new regulation?
Requirements were reduced or eliminated for proposals to:
- Acquire control of a bank holding company or state-member bank;
- Redeem shares of bank holding company stock; and
- Appoint directors and senior officers in new organizations and
organizations that have recently undergone a change in control.
13. What is the effective date for all these changes?
April 21, 1997
14. Who can I contact for more information?
Kenneth Binning, Director, Applications & Enforcement,
(415) 974-3007 or toll-free at (800)
227-4133, ext. 3007; or
Patrick Weiss, Senior Manager, Applications & Enforcement, at (415) 974-3013 or toll-free at (800) 227-4133,
ext. 3013.
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