Bank Holding Company
Supervision Manual
July 2008 Update
The July 2008 update to the Bank Holding Company Supervision Manual has been published (supplement no. 34). The manual comprises the Federal Reserve System's regulatory, supervisory, and inspection guidance for bank holding companies (BHCs). The new supplement includes guidance on the following subjects:
- Confidentiality Provisions in Third-Party Agreements. Section 4070.5, "Nondislosure of Supervisory Ratings," is revised (1) to provide supervisory guidance as to the prohibition on the disclosure of confidential supervisory information, and (2) to clarify the Federal Reserve's expectations regarding confidentiality provisions in agreements between a banking organization and its counterparties or other third parties. Confidential supervisory information includes any information related to an inspection of a banking organization. (See SR letters 07-19 and 97-17.)
- Communication of Inspection Findings. Section 5000.0, "BHC Inspection Program (General)," includes revisions to the general inspection reporting guidance. In order to be effective, the communication of examination findings must be (1) written in clear and concise language; (2) prioritized based upon importance; and (3) focused on any significant matters that require attention. To improve consistency and clarity in written communications, the Federal Reserve's inspection and supervisory staff are to use defined standardized terminology to differentiate among (1) Matters Requiring Immediate Attention; (2) Matters Requiring Attention; and (3) Observations. Communications are to specify a timeframe in which the banking organization must complete any required action. See SR letter 08-01 and its attachment (243 KB PDF).
- Certain Financial Holding Companies' (FHCs) Nonbank Activities--Those That Complement Financial Activities. Section 3905.0, "Permissible Activities for FHCs (Section 4(k) of the BHC Act)," is revised to include brief discussions of several 2007 and 2008 Board orders involving the nonbank activities of FHCs that complement certain financial activities. The activities include (1) disease management and mail-order pharmacy activities; (2) energy management services provided under energy management agreements; and (3) energy tolling provided under energy tolling agreements. See Press Release (2007), September 7; Press Release (2007), December 4; and Press Release (2008), March 27.
- Disease Management and Mail-Order Pharmacy Activities. This new section 3906.0 discusses, in more detail, the Board's September 7, 2007, order that was issued under section 4(k) of the BHC Act. The order responded to a request from the Federal Deposit Insurance Corporation. The Board determined that disease management and mail-order pharmacy activities complement the financial activity of underwriting and selling health insurance. See Press Release (2007), September 7.
- Limited Physically Settled Energy Tolling. Section 3920.0, "Limited Physical Commodity Trading Activities," has been revised to include the Board's March 27, 2008, order that approved an FHC's (1) limited trading in certain physical commodities that are not approved by the Commodities Futures and Trading Commission for trading in the United States or on non-U.S. futures exchanges; (2) making and taking delivery in nickel; (3) refining, blending, or altering of Board-approved commodities by a third party; and (4) engaging in limited physically settled energy tolling, a nonbank activity that the Board determined to be complementary to the financial activity of engaging, as principal, in commodity derivatives transactions. See Press Release (2008), March 27. Also discussed is the Board's December 4, 2007, order regarding an FHC's request to provide Energy Management Services (EMS) to the owners of power generation facilities. The EMS would be provided under energy management agreements as a complement to the financial activities of engaging as principal in commodity derivatives and providing financial and investment advisory services for derivative transactions. See Press Release (2007), December 4.
A more detailed summary of changes is included with the update package. The public may obtain the manual and the updates (including pricing information) from Publications Fulfillment, N-127, Board of Governors of the Federal Reserve System, 20th and C Streets, N.W., Washington, DC 20551; telephone (202) 452-3244; or send a facsimile to (202) 728-5886.