District Circular Letters

July 6, 2000

BANKING SUPERVISION AND REGULATION:
IDENTIFYING SOUND PRACTICES FOR
EQUITY INVESTMENT AND MERCHANT BANKING

To State Member Banks, Bank
Holding Companies, U.S. Branches
and Agencies of Foreign Banks,
and Others Concerned,
in the Twelfth Federal Reserve District

Examination Guidance for Equity Investment and Merchant Banking (SR 00-9)

The Federal Reserve Board has issued an examination guidance that identifies sound practices for equity investment and merchant banking.

Over the past several years, investing in equities and equity interests of non-public companies, and lending to private equity-financed companies, have emerged as increasingly important sources of earnings and business relationships at a number of banking organizations. These activities historically have been conducted primarily through small business investment corporations (SBICs) and Edge Act subsidiaries of banks and bank holding companies, and through the authority granted to bank holding companies (BHCs) to make investments in up to five percent of the outstanding voting shares of any company. The merchant banking provisions of the Gramm-Leach-Bliley Act (GLB Act) provide additional authority to financial holding companies to make equity investments in non-financial companies.

Copies

Copies of the Board's notice (SR 00-9) are available from our Corporate Services Department. To request copies to be sent by mail, please call (415) 974-2060.

Additional Information

For additional information about the examination guidance, please contact our Banking Supervision and Regulation Department, at (415) 974-3007.

FEDERAL RESERVE BANK OF SAN FRANCISCO