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6000 - Bank Holding Company Act
§ 225.112 Indirect control of small business concern through
convertible debentures held by small business investment company.
(a) A question has been raised concerning the
applicability of provisions of the Bank Holding Company Act of 1956 to
the acquisition by a bank holding company of stock of a small business
investment company ("SBIC") organized pursuant to the Small
Business Investment Act of 1958 ("SBI Act").
(b) As indicated in the interpretation of the Board
(§ 225.107) published
at 23 F.R. 7813, it is the Board's opinion that, since stock of an SBIC
is eligible for purchase by national banks and since section 4(c)(4) of
the Holding Company Act exempts stock eligible for investment by
national banks from the prohibitions of section 4 of that Act, a bank
holding company may lawfully acquire stock in such an SBIC.
(c) However, section 304 of the SBI Act provides that debentures of
a small business concern purchased by a small business investment
company may be converted at the option of such company into stock of
the small business concern. The question therefore arises as to
whether, in the event of such conversion, the parent bank holding
company would be regarded as having acquired "direct or indirect
ownership or control" of stock of the small business concern in
violation of section 4(a) of the Holding Company Act.
(d) The Small Business Investment Act clearly contemplates that one
of the primary purposes of that Act was to enable SBICs to provide
needed equity capital to small
{{2-28-06 p.6110.28-L-7}}business concerns through the purchase
of debentures convertible into stock. Thus, to the extent that a
stockholder in an SBIC might acquire indirect control of stock of a
small business concern, such control appears to be a natural and
contemplated incident of ownership of stock of the SBIC. The Office of
the Comptroller of the Currency has informally indicated concurrence
with this interpretation insofar as it affects investments by national
banks in stock of an SBIC.
(e) Since the exception as to stock eligible for investment by
national banks contained in section 4(c)(4) of the Holding Company Act
was apparently intended to permit a bank holding company to acquire any
stock that would be eligible for purchase by a national bank, it is the
Board's view that section 4(a)(1) of the Act does not prohibit a bank
holding company from acquiring stock of an SBIC, even though ownership
of such stock may result in the acquisition of indirect ownership or
control of stock of a small business concern which would not itself be
eligible for purchase directly by a national bank or a bank holding
company.
[Codified to 12 C.F.R. § 225.112]
[Source: 24 Fed. Reg. 1584, March 4,
1959]
§ 225.113 Services under
section 4(a) of Bank Holding
Company Act.
(a) The Board of Governors has been requested for an opinion as to
whether the performance of certain functions by a bank holding company
for four banks of which it owns less than 25 percent of the voting
shares is in violation of section 4(a) of the Bank Holding Company Act.
(b) It is claimed that the holding company is engaged in
"managing" four nonsubsidiary banks, for which services it
receives "management fees." Specifically, the company engages in
the following activities for the four nonsubsidiary banks: (1)
Establishment and supervision of loaning policies; (2) direction of the
purchase and sale of investment securities; (3) selection and training
of officer personnel; (4) establishment and enforcement of operating
policies; and (5) general supervision over all policies and practices.
(c) The question raised is whether these activities are prohibited
by section 4(a)(2) of the Bank Holding Company Act, which permits a
bank holding company to engage in only three categories of business:
(1) Banking; (2) managing or controlling banks; and (3) furnishing
services to or performing services for any bank of which the holding
company owns or controls 25 percent or more of the voting shares.
(d) Clearly, the activities of the company with respect to the four
nonsubsidiary banks do not constitute "banking." With respect to
the business of "managing or controlling" banks, it is the
Board's view that such business, within the purview of section 4(a)(2),
is essentially the exercise of a broad governing influence of the sort
usually exercised by bank stockholders, as distinguished from direct or
active participation in the establishment or carrying out of particular
policies or operations. The latter kinds of activities fall within the
third category of businesses in which a bank holding company is
permitted to engage. In the Board's view, the activities enumerated
above fall in substantial part within that third category.
(e) Section 4(a)(2), like all other sections of the Holding Company
Act, must be interpreted in the light of all of its provisions, as well
as in the light of other sections of the Act. The expression
"managing * * * banks," if it could be taken by itself, might
appear to include activities of the sort enumerated. However, such an
interpretation of those words would virtually nullify the last portion
of section 4(a)(2), which permits a holding company to furnish services
to or perform services for "any bank of which it owns or controls 25
per centum or more of the voting shares."
(f) Since Congress explicitly authorized the performance of
services for banks that are at least 25 percent owned by a holding
company, it obviously intended that the holding company should not
perform services for banks in which it owns less than 25 percent of the
voting shares. However, if the second category--"managing or
controlling banks"--were interpreted to permit the holding company
to perform services for any bank, including a bank in which it held
less than 25 percent of the stock (or no stock whatsoever), the last
clause of section 4(a)(2) would be meaningless.
(g) It is principally for this reason--that is, to give effective
meaning to the final clause of section 4(a)(2)--that the Board
interprets "managing or controlling banks" in that
{{2-28-06 p.6110.28-L-8}}provision as referring to the exercise
of a stockholder's management or control of banks, rather than direct
and active participation in their operations. To repeat, such active
participation in operations falls within the third category
("furnishing services to or performing services for any bank")
and consequently may be engaged in only with respect to banks in which
the holding company "owns or controls 25 per centum or more of the
voting shares."
(h) Accordingly, it is the Board's conclusion that, in
performing the services enumerated, the bank holding company is
"furnishing services to or performing services for" the four
banks referred to. Under the Act such furnishing or performing of
services is permissible only if the holding company owns or controls 25
percent of the voting shares of each bank receiving such services, and,
since the company owns less than 25 percent of the voting shares of
these banks, it follows that these activities are prohibited by section
4(a)(2).
(i) While this conclusion is required, in the Board's opinion, by
the language of the statute, it may be noted further that any other
conclusion would make it possible for a bank holding company or any
other corporation, through arrangements for the "managing" of
banks in the manner here involved, to acquire effective control of
banks without acquiring bank stocks and thus to evade the underlying
objectives of section 3 of the
Act.
[Codified to 12 C.F.R. § 225.113]
[Source: 25 Fed. Reg. 281, January 14,
1960]
§ 225.115 Applicability of Bank Service Corporation Act in
certain bank holding company situations.
(a) Questions have been presented to the Board of Governors
regarding the applicability of the recently enacted Bank Service
Corporation Act (Public Law 87-856, approved October 23, 1962) in cases
involving service corporations that are subsidiaries of bank holding
companies under the Bank Holding
Company Act of 1956. In addition to being charged with the
administration of the latter Act, the Board is named in the Bank
Service Corporation Act as the Federal supervisory agency with respect
to the performance of bank services for State member banks.
(b) Holding company-owned corporation serving only subsidiary
banks. (1) One question is whether the Bank Service Corporation
Act is applicable in the case of a corporation, wholly owned by a bank
holding company, which is engaged in performing "bank services,"
as defined in section 1(b) of the Act, exclusively for subsidiary banks
of the holding company.
(2) Except as noted below with respect to section 5 thereof, the
Bank Service Corporation Act is
not applicable in this case. This is true because none of the stock of
the corporation performing the services is owned by any bank and the
corporation, therefore, is not a "bank service corporation" as
defined in section 1(c) of the Act. A corporation cannot meet that
definition unless part of its stock is owned by two or more banks. The
situation clearly is unaffected by section 2(b) of the Act which
permits a corporation that fell within the definition initially to
continue to function as a bank service corporation although
subsequently only one of the banks remains as a stockholder in the
corporation.
(3) However, although it is not a bank service corporation, the
corporation in question and each of the banks for which it performs
bank services are subject to section 5 of the Bank Service Corporation
Act. That section, which requires the furnishing of certain assurances
to the appropriate Federal supervisory agency in connection with the
performance of bank services for a bank, is applicable whether such
services are performed by a bank service corporation or by others.
(4) Section 4(a)(1) of the Bank Holding Company Act prohibits the
acquisition by a bank holding company of "direct or indirect
ownership or control" of shares of a nonbanking company, subject to
certain exceptions. Section 4(c)(1) of the Act exempts from section
4(a)(1) shares of a company engaged "solely in the business of
furnishing services to or performing services for" its bank holding
company or subsidiary banks thereof. Assuming that the bank services
performed by the corporation in question are "services" of the
kinds contemplated by section 4(c)(1) of the Bank Holding Company Act
(as would be true, for example, of the electronic data processing of
deposit accounts), the holding company's ownership of the corporation's
shares in the situation described above clearly is permissible under
that section of the Act.
{{2-28-06 p.6110.28-L-9}}
(c) Bank service corporation owned by holding company
subsidiaries and serving also other banks. (1) The other
question concerns the applicability of the Bank Service Corporation Act
and the Bank Holding Company Act in the case of a corporation, all the
stock of which is owned either by a bank holding company and its
subsidiary banks together or by the subsidiary banks alone, which is
engaged in performing "bank services," as defined in section 1(b)
of the Bank Service Corporation Act, for the subsidiary banks and for
other banks, as well.
(2) In contrast to the situation under paragraph (b) of this
section, the corporation in this case is in a "bank service
corporation" within the meaning of section 1(c) of the Bank Service
Corporation Act because of the ownership by each of the subsidiary
banks of a part of the corporation's stock. This stock ownership is one
of the important facts differentiating this case from the first one.
Being a bank service corporation, the corporation in question is
subject to section 3 of the Act concerning applications to bank service
corporations by competitive banks for bank services, and to section 4
forbidding a bank service corporation from engaging in any activity
other than the performance of bank services for banks. Section 5,
mentioned previously and relating to "assurances," also is
applicable in this case.
(3) The other important difference between this case and the
situation in paragraph (b) of this section is that here the bank
service corporation performs services for nonsubsidiary banks, as well
as for subsidiary banks. This is permissible because section 2(a) of
the Bank Service Corporation Act, which authorizes any two or more
banks to invest limited amounts in a bank service corporation, removes
all limitations and prohibitions of Federal law exclusively relating to
banks that otherwise would prevent any such investment. From the
legislative history of section 2(a), it is clear that section 6 of the
Bank Holding Company Act is among the limitations and prohibitions so
removed. But for such removal, section 6(a)(1) of that Act would make
it unlawful for any of the subsidiary banks of the bank holding company
in question to own stock in the bank service corporation subsidiary of
the holding company, as the exemption in section 6(b)(1) would not
apply because of the servicing by the bank service corporation of
nonsubsidiary banks.
(4) Because the bank service corporation referred to in the
question is serving banks other than the subsidiary banks, the bank
holding company is not exempt under section 4(c)(1) of the Bank Holding
Company Act from the prohibition of acquisition of nonbanking interests
in section 4(a)(1) of that Act. The bank holding company, however, is
entitled to the benefit of the exemption in section 4(c)(4) of the Act.
That section exempts from section 4(a) "shares which are of the
kinds and amounts eligible for investment by national banking
associations under the provisions of section 5136 of the Revised
Statutes." Section 5136 provides, in part, that: "Except as
hereinafter provided or otherwise permitted by law, nothing herein
contained shall authorize the purchase by the association for its own
account of any shares of stock of any corporation." As the
provisions of section 2(a) of the Bank Service Corporation Act and its
legislative history make it clear that shares of a bank service
corporation are of a kind eligible for investment by national banks
under section 5136, it follows that the direct or indirect ownership or
control of such shares by a bank holding company are permissible within
the amount limitation discussed in paragraph (d) of this section.
(d) Limit on investment by bank holding company system in
stock of bank service corporation. (1) In the situation presented
by paragraph (c) the bank holding company clearly owns or controls,
directly or indirectly, all of the stock of the bank service
corporation. The remaining question, therefore, is whether the total
direct and indirect investment of the bank holding company in the bank
service corporation exceeds the amount permissible under the Bank
Holding Company Act.
(2) The effect of sections 4(a)(1) and 4(c)(4) of the Bank
Holding Company Act is to limit the amount of shares of a bank service
corporation that a bank holding company may own or control, directly or
indirectly, to the amount eligible for investment by a national bank,
as previously indicated. Under section 2(a) of the Bank Service
Corporation Act, the amount of shares of a bank service corporation
eligible for investment by a national bank may not exceed "10 per
centum [of the bank's] * * * paid-in and unimpaired capital and
unimpaired surplus."
(3) The Board's view is that this aspect of the matter should be
determined in accordance with the principles set forth in
§ 225.111, as revised
(27 F.R. 12671), involving the application of sections 4(a)(1) and
4(c)(4) of the Bank Holding Company Act in the
{{2-28-06 p.6110.28-L-10}}light of section 302(b) of the Small
Business Investment Act limiting the amount eligible for investment by
a national bank in the shares of a small business investment company to
two percent of the bank's capital and surplus."
(4) Except for the differences in the percentage figures, the
investment limitation in section 302(b) of the Small Business
Investment Act is essentially the same as the investment limitation in
section 2(a) of the Bank Service Corporation Act since, as an
accounting matter and for the purposes under consideration, "capital
and surplus" may be regarded as equivalent in meaning to "paid-in
and unimpaired capital and unimpaired surplus." Accordingly, the
maximum permissible investment by a bank holding company system in the
stock of a bank service corporation should be determined in accordance
with the formula prescribed in § 225.111.
[Codified to 12 C.F.R. § 225.115]
[Source: 27 Fed. Reg. 12918, December 29,
1962]
§ 225.118 Computer services for customers of subsidiary
banks.
(a) The question has been presented to the Board of Governors
whether a wholly-owned nonbanking subsidiary ("service company")
of a bank holding company, which is now exempt from the prohibitions of
section 4 of the Bank Holding Company
Act of 1956 ("the Act") because its sole business is the
providing of services for the holding company and the latter's
subsidiary banks, would lose its exempt status if it should provide
data processing services for customers of the subsidiary banks.
(b) The Board understood from the facts presented that the service
company owns a computer which it utilizes to furnish data processing
services for the subsidiary banks of its parent holding company.
Customers of these banks have requested that the banks provide for them
computerized billing, accounting, and financial records maintenance
services. The banks wish to utilize the computer services of the
service company in providing these and other services of a similar
nature. It is proposed that, in each instance where a subsidiary bank
undertakes to provide such services, the bank will enter into a
contract directly with the customer and then arrange to have the
service company perform the services for it, the bank. In no case will
the service company provide services for anyone other than its
affiliated banks. Moreover, it will not hold itself out as, nor will
its parent corporation or affiliated banks represent it to be,
authorized or willing to provide services for others.
(c) Section 4(c)(1) of the
Act permits a holding company to own shares in "any company engaged
solely * * * in the business of furnishing services to or performing
services for such holding company and banks with respect to which it is
a bank holding company * * * ." The Board has ruled heretofore
that the term "services" as used in section 4(c)(1) is to be read
as relating to those services (excluding "closely related"
activities of "a financial, fiduciary, or insurance nature"
within the meaning of section 4(c)(6)) which a bank itself can provide
for its customers
(§ 225.104). A
determination as to whether a particular service may legitimately be
rendered or performed by a bank for its customers must be made in the
light of applicable Federal or State statutory or regulatory
provisions. In the case of a State-chartered bank, the laws of the
State in which the bank operates, together with any interpretations
thereunder rendered by appropriate bank authorities, would govern the
right of the bank to provide a particular service. In the case of a
national bank, a similar determination would require reference to
provisions of Federal law relating to the establishment and operation
of national banks, as well as to pertinent rulings or interpretations
promulgated thereunder.
(d) Accordingly, on the assumption that all of the services to be
performed are of the kinds that the holding company's subsidiary banks
may render for their customers under applicable Federal or State law,
the Board concluded that the rendition of such services by the service
company for its affiliated banks would not adversely affect its exempt
status under section 4(c)(1) of the Act.
(e) In arriving at the above conclusion, the Board emphasized that
its views were premised explicitly upon the facts presented to it, and
particularly its understanding that banks are permitted, under
applicable Federal or State law to provide the proposed computer
services. The Board emphasized also that in respect to the service
company's operations, there continues to effect the requirement under
section 4(c)(1) that the service company engage solely in the business
of furnishing services to or performing services for the
bank
{{2-28-06 p.6110.28-L-11}}holding company and its subsidiary
banks. The Board added that any substantial change in the facts that
had been presented might require re-eximination of the service
company's status under section 4(c)(1).
[Codified to 12 C.F.R. § 225.118]
[Source: 29 Fed. Reg. 12361, August 28,
1964]
§ 225.121 Acquisition of Edge corporation affiliate by State
member banks of registered bank holding company.
(a) The Board has been asked whether it is permissible for the
commercial banking affiliates of a bank holding company registered
under the Bank Holding Company Act of 1956, as amended, to acquire and
hold the shares of the holding company's Edge corporation subsidiary
organized under section 25(a) of the
Federal Reserve Act.
(b) Section 9 of the Bank Holding Company Act amendments of 1966
(Public Law 89-485, approved July 1, 1966) repealed section 6 of the
Bank Holding Company Act of 1956. That rendered obsolete the Board's
interpretation of section 6 that was published in the March 1966
Federal Reserve Bulletin, page 339 (§ 225.120). Thus, so far as
Federal banking law applicable to State member banks is concerned, the
answer to the foregoing question depends on the provisions of
section 23A of the Federal Reserve
Act, as amended by the 1966 amendments to the Bank Holding
Company Act. By its specific terms, the provisions of section 23A do
not apply to an affiliate organized under section 25(a) of the Federal
Reserve Act.
(c) Accordingly, the Board concludes that, except for such
restrictions as may exist under applicable State law, it would be
legally permissible by virtue of paragraph 20 of section 9 of the
Federal Reserve Act for any or all of the State member banks that are
affiliates of a registered bank holding company to acquire and hold
shares of the Edge corporation subsidiary of the bank holding company
within the amount limitation in the last sentence of paragraph 12 of
section 25(a) of the Federal Reserve Act.
[Codified to 12 C.F.R. § 225.121]
[Source: 31 Fed. Reg. 10263, July 29,
1966]
§ 225.122 Bank holding company ownership of mortgage companies.
(a) The Board of Governors recently considered whether a bank
holding company may acquire, either directly or through a subsidiary,
the stock of a so-called "mortgage company" that would be
operated on the following basis: The company would solicit mortgage
loans on behalf of a bank in the holding company system, assemble
credit information, make property inspections and appraisals, and
secure title information. The company would also participate in the
preparation of applications for mortgage loans, which it would submit,
together with recommendations with respect to action thereon, to the
bank, which alone would decide whether to make any or all of the loans
requested. The company would in addition solicit investors to purchase
mortgage loans from the bank and would seek to have such investors
contract with the bank for the servicing of such loans.
(b) Under section 4 of the Bank Holding Company Act (12 U.S.C.
1843), a bank holding company is generally prohibited from acquiring
"direct or indirect ownership" of stock of nonbanking
corporations. The two exceptions principally involved in the question
presented are with respect to (1) stock that is eligible for investment
by a national bank (section
4(c)(5) of the Act) and (2) shares of a company "furnishing
services to or performing services for such bank holding company or its
banking subsidiaries" (section 4(c)(1)(C) of the Act).
(c) The Board has previously indicated its view that a national
bank is forbidden by the so-called "stock-purchase
prohibition" of paragraph "Seventh" of section 5136 of the
Revised Statutes (12 U.S.C. 24) to purchase "for its own
account * * * any shares of stock of any corporation" except (1)
to the extent permitted by specific provisions of Federal law or (2) as
comprised within the concept of "such incidental powers as shall be
necessary to carry on the business of banking" referred to in
the first sentence of said paragraph "Seventh." There is no
specific statutory provision authorizing a national bank to purchase
stock in a mortgage company, and in the Board's view such purchase
may
{{2-28-06 p.6110.28-L-12}}not properly be
regarded as authorized under the "incidental powers" clause. (See
1966 Federal Reserve Bulletin 1151; 12 CFR 208.119.) Accordingly, a
bank holding company may not acquire stock in a mortgage company on the
basis of the section 4(c)(5) exemption.
(d) However, the Board does not believe that such conclusion
prejudices consideration of the question whether such a company is
within the section 4(c)(1)(C) "servicing" exemption. The basic
purpose of section 4 of the Act is to confine a bank holding company's
activities to the management and control of banks. In determining
whether an activity in which a bank could itself engage is within the
servicing exemption, the question is simply whether such activity may
appropriately be considered as "furnishing services to or performing
services for" a bank.
(e) As indicated in the Board's interpretation published in the
1958 Federal Reserve Bulletin at page 431
(12 CFR 225.104), the
legislative history of the servicing exemption indicates that it
includes the following activities: "auditing, appraising, investment
counseling" and "advertising, public relations, developing new
business, organization, operations, preparing tax returns, and
personnel." The legislative history further indicates that some
other activities also are within the scope of the exemption. However,
the types of servicing permitted under such exemption must be
distinguished from activities of a "financial, fiduciary, or
insurance nature," such as those that might be considered for
possible exemption under section 4(c)(8) of the Act.
(f) In considering the interrelation of these exemptions in the
light of the purpose of the prohibition against bank holding company
interests in nonbanking organizations, the Board has concluded that the
appropriate test for determining whether a mortgage company may be
considered as within the servicing exemption is whether the company
will perform as principal any banking activities--such as receiving
deposits, paying checks, extending credit, conducting a trust
department, and the like. In other words, if the mortgage company is to
act merely as an adjunct to a bank for the purpose of facilitating the
bank's operations, the company may appropriately be considered as
within the scope of the servicing
exemption. 1
(g) On this basis, the Board concluded that, insofar as the Bank
Holding Company Act is concerned, a bank holding company may acquire,
either directly or through a subsidiary, the stock of a mortgage
company whose functions are as described in the question presented. On
the other hand, in the Board's view, a bank holding company may not
acquire, on the basis of the servicing exemption, a mortgage company
whose functions include such activities as extending credit for its own
account, arranging interim financing, entering into mortgage service
contracts on a fee basis, or otherwise performing functions other than
solely on behalf of a bank.
[Codified to 12 C.F.R. § 225.122]
[Source: 32 Fed. Reg. 15004, October 31, 1967, as amended at 35
Fed. Reg. 19662, December 29, 1970, effective December 21,
1970]
§ 225.123 Activities closely related to banking.
(a) Effective June 15, 1971, the Board of Governors has amended
§ 225.4(a) of Regulation
Y to implement its regulatory authority under
section 4(c)(8) of the Bank
Holding Company Act. In some respects activities determined by the
Board to be closely related to banking are described in general terms
that will require interpretation from time to time. The Board's views
on some questions that have arisen are set forth below.
(b) Section 225.4(a) states that a company whose ownership by
a bank holding company is authorized on the basis of that section may
engage solely in specified activities. That limitation refers only to
activities the authority for which depends on section 4(c)(8) of the
Act. It does not prevent a holding company from establishing one
subsidiary to engage, for
{{2-28-06 p.6110.28-L-13}}example,
in activities specified in § 225.4(a) and also in activities that
fall within the scope of section 4(c)(1)(C) of the Act--the
"servicing" exemption.
(c) The amendments to § 225.4(a) do not apply to restrict the
activities of a company previously approved by the Board on the basis
of section 4(c)(8) of the Act. Activities of a company authorized on
the basis of section 4(c)(8) either before the 1970 Amendments or
pursuant to the amended § 225.4(a) may be shifted in a corporate
reorganization to another company within the holding company system
without complying with the procedures of § 225.4(b), as long as all
the activities of such company are permissible under one of the
exemptions in section 4 of the Act.
(d) Under the procedures in § 225.4(c), a holding company that
wishes to change the location at which it engages in activities
authorized pursuant to § 225.4(a) must publish notice in a newspaper
of general circulation in the community to be served. The Board does
not regard minor changes in locations as within the coverage of that
requirement. A move from one site to another within a 1-mile radius
would constitute such a minor change if the new site is in the same
State.
(e) Data Processing: In providing packaged data
processing and transmission services for banking, financial and
economic data for installation on the premises of the customer, as
authorized by § 225.4(a)(8)(ii), a bank holding company should limit
its activities to providing facilities that perform banking functions,
such as check collection, or other similar functions for customers that
are depository or other similar institutions, such as mortgage
companies. In addition, the Board regards the following as incidental
activities necessary to carry on the permissible activities in this
area:
(1) Providing excess capacity, not limited to the processing or
transmission of banking, financial or economic data on data processing
or transmission equipment or facilities used in connection with
permissible data processing and data transmission activities, where:
(A) equipment is not purchased solely for the purpose of creating
excess capacity;
(B) hardware is not offered in connection therewith; and
(C) facilities for the use of the excess capacity do not include
the provision of any software, other than systems software (including
language), network communications support, and the operating personnel
and documentation necessary for the maintenance and use of these
facilities.
(2) Providing by-products of permissible data processing and data
transmission activities, where not designed, or appreciably enhanced,
for the purpose of marketability.
(3) Furnishing any data processing service upon request of a
customer if such data processing service is not otherwise reasonably
available in the relevant market area; and
In order to eliminate or reduce to an insignificant degree any
possibility of unfair competition where services, facilities,
by-products or excess capacity are provided by a bank holding company's
nonbank subsidiary or related entity, the entity providing the
services, facilities, by-products and/or excess capacity should have
separate books and financial statements, and should provide these books
and statements to any new or renewal customer requesting financial
data. Consolidated or other financial statements of the bank holding
company should not be provided unless specifically requested by the
customer.
[Codified to 12 C.F.R. § 225.123]
[Source: 36 Fed. Reg. 10778, June 3, 1971, effective June
15, 1971, as amended at 36 Fed. Reg. 11806, June 19, 1971, effective
July 1 1971; 37 Fed. Reg. 11316, June 7, 1972; 39 Fed. Reg. 11254,
11255, March 27, 1974, effective April 17, 1974; 40 Fed. Reg. 11710,
March 13, 1975, effective March 7, 1975; 40 Fed. Reg. 13304, March 26,
1975; 40 Fed. Reg. 13477, March 27, 1975; 47 Fed. Reg. 37373, August
26, 1982, effective September 25, 1982; 52 Fed. Reg. 45161, November
25, 1987]
{{2-28-06 p.6110.28-L-14}}
§ 225.124 Foreign bank holding companies.
(a) Effective December 1, 1971, the Board of Governors has added a
new § 225.4(g) to
Regulation Y implementing its authority under
section 4(c)(9) of the Bank
Holding Company Act. The Board's views on some questions that have
arisen in connection with the meaning of terms used in § 225.4(g) are
set forth in paragraphs (b) through (g) of this section.
(b) The term "activities" refers to nonbanking activities and
does not include the banking activities that foreign banks conduct in
the United States through branches or agencies licensed under the
banking laws of any State of the United States or the District of
Columbia.
(c) A company (including a bank holding company) will not be deemed
to be engaged in "activities" in the United States merely because
it exports (or imports) products to (or from) the United States, or
furnishes services or finances goods or services in the United States,
from locations outside the United States. A company is engaged in
"activities" in the United States if it owns, leases, maintains,
operates, or controls any of the following types of facilities in the
United States:
(1) A factory,
(2) A wholesale distributor or purchasing agency,
(3) A distribution center,
(4) A retail sales or service outlet,
(5) A network of franchised dealers,
(6) A financing agency, or
(7) Similar facility for the manufacture, distribution,
purchasing, furnishing, or financing of goods or services locally in
the United States.
A company will not be considered to be engaged in "activities"
in the United States if its products are sold to independent importers,
or are distributed through independent warehouses, that are not
controlled or franchised by it.
(d) In the Board's opinion, section 4(a)(1) of the Bank Holding
Company Act applies to ownership or control of shares of stock as an
investment and does not apply to ownership or control of shares of
stock in the capacity of an underwriter or dealer in securities.
Underwriting or dealing in shares of stock are nonbanking activities
prohibited to bank holding companies by section 4(a)(2) of the Act,
unless otherwise exempted. Under § 225.4(g) of Regulation Y, foreign
bank holding companies are exempt from the prohibitions of section 4 of
the Act with respect to their activities outside the United States;
thus foreign bank holding companies may underwrite or deal in shares of
stock (including shares of United States issuers) to be distributed
outside the United States, provided that shares so acquired are
disposed of within a reasonable time.
(e) A foreign bank holding company does not "indirectly" own
voting shares by reason of the ownership or control of such voting
shares by any company in which it has a noncontrolling interest. A
foreign bank holding company may, however, "indirectly" control
such voting shares if its noncontrolling interest in such company is
accompanied by other arrangements that, in the Board's judgment, result
in control of such shares by the bank holding company. The Board has
made one exception to this general approach. A foreign bank holding
company will be considered to indirectly own or control voting shares
of a bank if that bank holding company acquires more than 5 percent of
any class of voting shares of another bank holding company. A bank
holding company may make such an acquisition only with prior approval
of the Board.
(f) A company is "indirectly" engaged in activities in the
United States if any of its subsidiaries (whether or not incorporated
under the laws of this country) is engaged in such activities. A
company is not "indirectly" engaged in activities in the United
States by reason of a noncontrolling interest in a company engaged in
such activities.
(g) Under the foregoing rules, a foreign bank holding company may
have a noncontrolling interest in a foreign company that has a United
States subsidiary (but is not engaged in the securities business in the
United States) if more than half of the foreign
company's
{{2-28-06 p.6110.28-L-15}}consolidated
assets and revenues are located and derived outside the United States.
For the purpose of such determination, the assets and revenues of the
United States subsidiary would be counted among the consolidated assets
and revenues of the foreign company to the extent required or permitted
by generally accepted accounting principles in the United States. The
foreign bank holding company would not, however, be permitted to
"indirectly" control voting shares of the said United States
subsidiary, as might be the case if there are other arrangements
accompanying its noncontrolling interest in the foreign parent company
that, in the Board's judgment, result in control of such shares by the
bank holding company.
[Codified to 12 C.F.R. § 225.124]
[Source: 36 Fed. Reg. 21808, November 16, 1971, effective December
1, 1971]
1 Insofar as the 1958 interpretation referred to above
suggested that the branch banking laws are an appropriate general test
for determining the scope of the servicing exemption, such
interpretation is hereby modified. In view of the different purposes to
be served by the branch banking laws and by section 4 of the Bank
Holding Company Act, the Board has concluded that basing determinations
under the latter solely on the basis of determinations under the former
is inappropriate. Go Back to Text
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