Volume 9; No. 3; Summer 1997
Regulation Y Revised - Changes to the Federal Reserve Application Process
By Mike Johnson, Applications Officer, Federal Reserve Bank of San
The Federal Reserve Board recently adopted revisions to Regulation Y
which implements the Bank Holding Company Act. Under Regulation Y, bank
holding companies require Federal Reserve Bank (Fed) approval to purchase
both bank and non-bank subsidiaries.
According to the Fed Vice Chairman Alice Rivlin, the new regulation represents
a "difficult balancing act" that will allow the banking system to "operate
better as a result." Effective April 21, 1997, the revised regulation
includes a new streamlined application procedure for qualifying bank holding
companies that reduces the time and paperwork required to receive approval
for acquisitions or to engage in various other activities. At the same
time, the revised regulation clarifies and preserves the role of public
comments in the application process considered critical by the community.
The New Streamlined Procedure
When developing the new streamlined approval procedure, the Board's top
priority was to establish quantified criteria for each factor considered
in the application process. Institutions that meet these criteria can
now receive authorization to expand under the new simplified procedure
with significantly reduced information requirements. Under the new regulation,
the application process for bank acquisitions has been reduced from the
current maximum 62-day period to no more than 35 days.
The new procedure applies to bank and non-bank expansionary activities
proposed by qualifying banking companies. To qualify for the streamlined
procedure, the bank holding company, its lead bank, and at least 80 percent
of its consolidated banking assets must be held in institutions that are:
- Well-managed (To be well-managed, an institution must have an overall
satisfactory or better composite rating at its last examination, a satisfactory
or better management rating, and a satisfactory or better compliance
- Maintain a satisfactory CRA rating
The proposed acquisition must also meet criteria with respect to areas
- Interstate Banking Requirements
- Asset Size Limitations; and
- Public Comments
For non-bank subsidiary acquisitions, the application process has been
shortened from 30 to 12 days. Qualifying bank holding companies will not
have to give the Fed advance notice of their plans to start-up new non-banking
lines of business but will have to notify the appropriate regulator of
their actions within 10 days.
Community Concerns Remain A Priority
When designing the streamlined application process, the Board focused
on community concerns as a top priority. Under the revised regulation,
an institution's CRA record continues to play a prominent role. As noted
above, bank holding companies can not qualify for the new streamlined
procedure unless they have satisfactory or better CRA ratings.
The Board reaffirmed its belief in the importance of the CRA aspect of
Regulation Y by preserving the public notice requirements for bank holding
company acquisitions. Bank holding companies must place a notice seeking
public comment on the pending merger in a local newspaper of general circulation
in the effected areas prior to sending an application for a merger to
the Fed for consideration. This newspaper notice may appear 15 days prior
to the application with the Fed. Notice is also published in the Federal
Register and may be submitted seven days before the application is filed.
In addition to the newspaper and Federal Register notice requirements,
the Board implemented several new methods of public disclosure to ensure
that the public is adequately informed of pending applications and their
respective comment periods. The Fed has developed a form known as the
H-2A that lists all applications currently on file with the Fed and the
ending dates for their respective comment periods. This list is updated
at least every three days and is available on the Fed's homepage at www.bog.frb.fed.us
or from a 24-hour-day-fax-on demand service at (202) 452-3655.
To ensure quality community input, the Board retained a 30-day public
comment period. All public comments must be substantive to be considered
in the application process. The comments should relate directly to a factor
that the Board is required to consider such as community needs or the
character and quality of management. If the comment is adverse with respect
to the specific proposal, support for the negative recommendations should
also be submitted. Comments submitted after the public comment period
may be considered only in extraordinary circumstances.
| Michael Johnson is the Applications Officer in Banking Supervision
& Regulation at the Federal Reserve Bank of San Francisco. Mr.
Johnson joined the San Francisco District of the Federal Reserve
Bank in August 1995. Prior to his current position, Mr. Johnson
was Applications Director for the Federal Reserve Bank of Dallas
from May 1992 through August 1995 and has served a total of twelve
years in the Federal Reserve System, working in various capacities.
Mr Johnson hails from the University of Texas, with a Bachelor of
Business Administration and a Bachelor of Arts in Economics.