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2000 - Rules and Regulations
Subpart EFinancial Subsidiaries of Insured State
Nonmember Banks
§ 362.16 Purpose and scope.
(a) This subpart, along with the notice and application procedures
in subpart G of part 303 of this chapter, implements section 46 of the
Federal Deposit Insurance Act (12
U.S.C. 1831w) and requires that an insured state nonmember bank
certify certain facts and file a notice with the FDIC before the
insured state nonmember bank may control or hold an interest in a
financial subsidiary under section 46(a) of the Federal Deposit
Insurance Act. This subpart also implements the statutory Community
Reinvestment Act (CRA) (12 U.S.C. 2901 et seq.) requirement
set forth in subsection (4)(l)(2) of the Bank Holding Company Act
(12 U.S.C. 1843(l)(2)), which
is applicable to state nonmember banks that commence new activities
through a financial subsidiary or directly or indirectly acquire
control of a company engaged in an activity under section 46(a).
(b) This subpart does not cover activities conducted other than
"as principal". For purposes of this subpart, activities
conducted other than "as principal" are defined as activities
conducted as agent for a customer, conducted in a brokerage, custodial,
advisory, or administrative capacity, or conducted as trustee, or in
any substantially similar capacity. For example, this subpart does not
cover acting solely as agent for the sale of insurance, securities,
real estate, or travel services; nor does it cover acting as trustee,
providing personal financial planning advice, or safekeeping services.
[Codified to 12 C.F.R. § 362.16]
[Section 362.16 added at 65 Fed. Reg. 15530, March 23,
2000, effective March 11, 2000; amended at 66 Fed. Reg. 1029, January
5, 2001]
§ 362.17 Definitions.
For the purposes of this subpart, the following definitions
will apply:
(a) Activity, company, control, insured depository
institution, insured state bank, insured state nonmember bank, and
subsidiary have the same meaning as provided in subpart A of
this part.
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(b) Affiliate has the same meaning provided in subpart B
of this part.
(c) Financial subsidiary means any company that is
controlled by one or more insured depository institutions other than:
(1) A subsidiary that only engages in activities that the state
nonmember bank is permitted to engage in directly and that are
conducted on the same terms and conditions that govern the conduct of
the activities by the state nonmember bank; or
(2) A subsidiary that the state nonmember bank is specifically
authorized to control by the express terms of a federal statute (other
than section 46(a) of the Federal Deposit Insurance Act
(12 U.S.C. 1831w)), and not
by implication or interpretation, such as the Bank Service Company Act
(12 U.S.C. 1861 et seq.).
(d) Tangible equity and Tier 2 capital have the same
meaning as set forth in part
325 of this chapter.
(e) Well-managed means:
(1) Unless otherwise determined in writing by the appropriate
federal banking agency, the institution has received a composite rating
of 1 or 2 under the Uniform Financial Institutions Rating System (or an
equivalent rating under an equivalent rating system) in connection with
the most recent state or federal examination or subsequent review of
the depository institution and at least a rating of 2 for management,
if such a rating is given; or
(2) In the case of any depository institution that has not been
examined by its appropriate federal banking agency, the existence and
use of managerial resources that the appropriate federal banking agency
determines are satisfactory.
[Codified to 12 C.F.R. § 362.17]
[Section 362.17 added at 65 Fed. Reg. 15530, March 23,
2000, effective March 11, 2000; amended at 66 Fed. Reg. 1029, January
5, 2001]
§ 362.18 Financial subsidiaries of insured state nonmember
banks.
(a) "As principal" activities. An insured state
nonmember bank may not obtain control of or hold an interest in a
financial subsidiary that engages in activities as principal or
commence any such new activity pursuant to section 46(a) of the Federal
Deposit Insurance Act (12 U.S.C.
1831w) unless the insured state nonmember bank files a notice
containing the information required in
§ 303.121(b) of this
chapter and certifies that:
(1) The insured state nonmember bank is well-managed;
(2) The insured state nonmember bank and all of its insured
depository institution affiliates are well-capitalized as defined in
the appropriate capital regulation and guidance of each institution's
primary federal regulator; and
(3) The insured state nonmember bank will deduct the aggregate
amount of its outstanding equity investment, including retained
earnings, in all financial subsidiaries that engage in activities as
principal pursuant to section 46(a) of the Federal Deposit Insurance
Act (12 U.S.C. 1831w), from the bank's total assets and tangible
equity and deduct such investment from its total risk-based capital
(this deduction shall be made equally from Tier 1 and Tier 2 capital).
(b) Community Reinvestment Act (CRA). An insured state
nonmember bank may not commence any new activity subject to section
46(a) of the Federal Deposit Insurance Act (12 U.S.C. 1831w) or
directly or indirectly acquire control of a company engaged in any such
activity pursuant to § 362.18(a)(1), if the bank or any of its
insured depository institution affiliates received a CRA rating of less
than "satisfactory record of meeting community credit needs" in
its most recent CRA examination.
(c) Other requirements. An insured state nonmember bank
controlling or holding an interest in a financial subsidiary under
section 46(a) of the Federal Deposit Insurance Act (12 U.S.C. 1831w)
must meet and continue to meet the requirements set forth in paragraph
(a) of this section as long as the insured state nonmember bank holds
the financial subsidiary and:
(1) Disclose and continue to disclose the capital separation
required in paragraph (a)(3) in any published financial statements;
(2) Comply and continue to comply with sections 23A and 23B of
the Federal Reserve Act (12 U.S.C.
371c and 371c--1) as if
the subsidiary were a financial subsidiary of a national bank; and
(3) Comply and continue to comply with the financial and
operational standards provided by section 5136A(d) of the Revised
Statutes of the United States (12 U.S.C. 24A(d)), unless otherwise
determined by the FDIC.
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(d) Securities underwriting. If the financial
subsidiary of the insured state nonmember bank will engage in the
public sale, distribution or underwriting of stocks, bonds, debentures,
notes, or other securities activity of a type permissible for a
national bank only through a financial subsidiary, then the state
nonmember bank and the financial subsidiary also must comply and
continue to comply with the following additional requirements:
(1) The securities business of the financial subsidiary must be
physically separate and distinct in its operations from the operations
of the bank, provided that this requurement shall not be construed to
prohibit the bank and its financial subsidiary from sharing the same
facility if the area where the financial subsidiary conducts securities
business with the public is physically distinct from the routine
deposit taking area of the bank;
(2) The financial subsidiary must conduct its securities business
pursuant to independent policies and procedures designed to inform
customers and prospective customers of the financial subsidiary that
the financial subsidiary is a separate organization from the insured
state nonmember bank and that the insured state nonmember bank is not
responsible for and does not guarantee the obligations of the financial
subsidiary;
(3) The bank must adopt policies and procedures, including
appropriate limits on exposure, to govern its participation in
financing transactions underwritten by its financial subsidiary; and
(4) The bank must not express an opinion on the value or the
advisability of the purchase or sale of securities underwritten or
dealt in by its financial subsidiary unless the bank notifies the
customer that the entity underwriting, making a market, distributing or
dealing in the securities is a financial subsidiary of the bank.
(e) Applications for exceptions to certain
requirements. Any insured state nonmember bank that is unable to
comply with the well-managed requirement of § 362.18(a)(1) and
(c)(1), any state nonmember bank that has appropriate reasons for not
meeting the financial and operational standards applicable to a
financial subsidiary of a national bank conducting the same activities
as provided in § 362.18(c)(3) or any state nonmember bank and its
financial subsidiary subject to the securities underwriting activities
requirements in § 362.18(d) that is unable to meet such requirements
may submit an application in compliance with
§ 303.121 of this
chapter to seek a waiver or modification of such requirements under the
procedure in
§ 303.122(b) of this
chapter. The FDIC may impose additional prudential safeguards as are
necessary as a condition of its consent.
(f) Failure to meet
requirements. (1) Notification by FDIC. The FDIC
will notify the insured state nonmember bank in writing and identify
the areas of noncompliance, if:
(i) The FDIC finds that an insured state nonmember bank or any of
its insured depository institution affiliates is not in compliance with
the CRA requirement of § 362.18(b) at the time any new activity is
commenced or control of the financial subsidiary is acquired;
(ii) The FDIC finds that the facts to which an insured state
nonmember bank certified under § 362.18(a) are not accurate in whole
or in part; or
(iii) The FDIC finds that the insured state nonmember bank or any
of its insured depository institution affiliates or the financial
subsidiary fails to meet or continue to comply with the requirements of
§ 362.18(c) and (d), if applicable, and the FDIC has not granted an
exception under the procedures set forth in § 362.18(e) and in
§ 303.122(b) of this chapter.
(2) Notification by state nonmember bank. An insured
state nonmember bank that controls or holds an interest in a financial
subsidiary must promptly notify the FDIC if the bank becomes aware that
any depository institution affiliate of the bank has ceased to be
well-capitalized.
(3) Subsequent action by FDIC. The FDIC may take any
appropriate action or impose any limitations, including requiring that
the insured state nonmember bank to divest control of any such
financial subsidiary, on the conduct or activities of the insured state
nonmember bank or any financial subsidiary of the insured state bank
that fails to:
(i) Meet the requirements listed in § 362.18(a) and (b) at the
time that any new section 46 activity is commenced or control of a
financial subsidiary is acquired by an insured state nonmember bank; or
(ii) Meet and continue to meet the requirements listed in
§ 362.18(c) and (d), as applicable.
(g) Coordination with section 24 of the Federal Deposit
Insurance Act. (1) Continuing authority under section
24. Notwithstanding § 362.18(a) through (f), an insured state
bank may retain its interest in any subsidiary;
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(i) That was conducting a financial activity with authorization
in accordance with section 24 of the Federal Deposit Insurance Act
(12 U.S.C. 1831a) and the
applicable implementing regulation found in subpart A of this part 362
before the date on which any such activity became for the first time
permissible for a financial subsidiary of a national bank; and
(ii) Which insured state nonmember bank and its subsidiary
continue to meet the conditions and restrictions of the section 24
order or regulation approving the activity as well as other applicable
law.
(2) Continuing authority under section 24(f) of the Federal
Deposit Insurance Act. Notwithstanding § 362.18(a) through (f),
an insured state bank with authority under section 24(f) of the Federal
Deposit Insurance Act (12 U.S.C.
1831a(f)) to hold equity securities may continue to establish
new subsidiaries to engage in that investment activity.
(3) Relief from conditions. Any state nonmember bank
that meets the requirements of paragraph (g)(1) of this section or that
is subject to section 46(b) of the Federal Deposit Insurance Act
(12 U.S.C. 1831w(b)) may
submit an application in compliance with
§ 303.121 of this
chapter and seek the consent of the FDIC under the procedure in
§ 303.122(b) of this
chapter for modification of any conditions or restrictions the FDIC
previously imposed in connection with a section 24 order or regulation
approving the activity.
(4) New financial subsidiaries. Notwithstanding
subpart A of this part 362, an insured state bank may not, on or after
November 12, 1999, acquire control of, or acquire an interest in, a
financial subsidiary that engages in activities as principal or
commences any new activity under section 46(a) of the Federal Deposit
Insurance Act (12 U.S.C.
1831w) other than as provided in this section.
[Codified to 12 C.F.R. § 362.18]
[Section 362.18 added at 65 Fed. Reg. 15530, March 23, 2000,
effective March 11, 2000; amended at 66 Fed. Reg. 1029, January 5,
2001]
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