[Federal Register Volume 78, Number 111 (Monday, June 10, 2013)]
[Rules and Regulations]
[Pages 34711-34736]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-13595]



[[Page 34711]]

Vol. 78

Monday,

No. 111

June 10, 2013

Part II





Federal Deposit Insurance Corporation





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12 CFR Part 380





Definition of ``Predominantly Engaged in Activities That Are Financial 
in Nature or Incidental Thereto''; Final Rule

Federal Register / Vol. 78 , No. 111 / Monday, June 10, 2013 / Rules 
and Regulations

[[Page 34712]]


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FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 380

RIN 3064-AD73


Definition of ``Predominantly Engaged in Activities That Are 
Financial in Nature or Incidental Thereto''

AGENCY: Federal Deposit Insurance Corporation.

ACTION: Final rule.

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SUMMARY: The Federal Deposit Insurance Corporation (``FDIC'') is 
adopting a final rule that establishes criteria for determining if a 
company is predominantly engaged in ``activities that are financial in 
nature or incidental thereto'' for purposes of Title II of the Dodd-
Frank Wall Street Reform and Consumer Protection Act (``Dodd-Frank 
Act'' or the ``Act''). A company that is predominantly engaged in such 
activities is a ``financial company'' for purposes of Title II of the 
Act (``Title II'') unless it is one of the few entities specifically 
excepted by the Act. A financial company, other than an insured 
depository institution, may be subject to Title II's orderly 
liquidation authority if, among other things, it is determined that the 
failure of the company and its resolution under otherwise applicable 
law would have serious adverse effects on financial stability in the 
United States.

DATES: This final rule is effective July 10, 2013.

FOR FURTHER INFORMATION CONTACT: Ryan K. Clougherty, Senior Attorney, 
(202) 898-3843; Robert C. Fick, Supervisory Counsel, (202) 898-8962; or 
Rachel A. Jones, Attorney, Legal Division, Federal Deposit Insurance 
Corporation, 550 17th Street NW., Washington, DC 20429.

SUPPLEMENTARY INFORMATION:

I. Background

    Title II establishes a process for the appointment of the FDIC as 
receiver of a failing financial company if, among other things, its 
failure would otherwise have serious adverse effects on financial 
stability in the United States (a ``covered financial company'').\1\ 
Under this process, certain designated Federal regulatory authorities 
(herein referred to as the ``recommending agencies'') must recommend to 
the Secretary of the Treasury (the ``Secretary'') that the Secretary 
appoint the FDIC as receiver of the company. The recommending agencies 
are the Board of Governors of the Federal Reserve System (``Board of 
Governors'') and the Securities and Exchange Commission in consultation 
with the FDIC, if the company or its largest U.S. subsidiary is a 
broker or a dealer; the Board of Governors and the Director of the 
Federal Insurance Office in consultation with the FDIC, if the company 
or its largest U.S. subsidiary is an insurance company; and the Board 
of Governors and the FDIC, in all other cases.\2\
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    \1\ See 12 U.S.C. 5383(b).
    \2\ See 12 U.S.C. 5383(a).
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    Title II requires that recommendations to the Secretary include, 
among other things, an evaluation of whether the company is a financial 
company in default or in danger of default, a description of the effect 
that such company's default would have on the financial stability of 
the United States, an evaluation of why a case under the Bankruptcy 
Code would not be appropriate, and an evaluation of whether the company 
satisfies the definition of ``financial company'' found in section 
201(a)(11) of the Act.
    Upon receipt of such recommendations, the Secretary must make 
certain determinations in order to implement Title II's orderly 
liquidation authority. The Secretary shall take action to appoint the 
FDIC as receiver, if the Secretary (in consultation with the President) 
determines generally that (a) the company is a financial company in 
default or in danger of default; (b) the failure of the company and its 
resolution under otherwise applicable Federal or State law would have 
serious adverse effects on financial stability in the United States; 
(c) no viable private sector alternative is available to prevent the 
default; (d) any effect on the claims or interests of creditors, 
counterparties, and shareholders is appropriate; (e) any action under 
the liquidation authority will avoid or mitigate such adverse effects 
taking into consideration the effectiveness of the action in mitigating 
the potential adverse effects on the financial system, the cost to the 
general fund of the Treasury, and the potential to increase excessive 
risk taking; (f) a Federal regulatory agency has ordered the company to 
convert all of its convertible debt instruments that are subject to 
regulatory order; and (g) the company satisfies the definition of a 
financial company under Title II.\3\
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    \3\ See 12 U.S.C. 5383(b).
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    If the board of directors (or similar governing body) of the 
financial company consents to the appointment, the FDIC's appointment 
as receiver becomes effective immediately. However, if the company's 
governing body does not consent to the appointment, the Secretary must 
petition the United States District Court for the District of Columbia 
for an order authorizing the appointment of the FDIC as receiver. The 
Court will determine whether the Secretary's determinations that the 
financial company is in default or in danger of default and that it 
satisfies the definition of financial company under Title II are 
arbitrary and capricious. If the Court finds that the Secretary's 
determinations are not arbitrary and capricious, it will issue an order 
authorizing the Secretary to appoint the FDIC as receiver.\4\ If the 
Court does not make a determination within twenty-four hours of 
receiving the petition, then the appointment of the FDIC occurs by 
operation of law.
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    \4\ If the Court overrules the Secretary's determination, the 
Secretary is provided the opportunity to amend and refile the 
petition immediately. Title II includes appeal provisions, but does 
not provide for a stay of the actions taken by the receiver after 
its appointment.
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    Section 201(a)(11) of the Act defines ``financial company'' for 
purposes of Title II as any company incorporated or organized under any 
provision of Federal law or the laws of any State that is: (i) A bank 
holding company, as defined in section 2(a) of the Bank Holding Company 
Act of 1956 (``BHC Act'') \5\; (ii) a nonbank financial company 
supervised by the Board of Governors; (iii) any company that is 
predominantly engaged in activities that the Board of Governors has 
determined are financial in nature or incidental thereto for purposes 
of section 4(k) of the BHC Act (``section 4(k)''); \6\ or (iv) any 
subsidiary of any of the aforementioned companies that is predominantly 
engaged in activities that the Board of Governors has determined are 
financial in nature or incidental thereto for purposes of section 4(k), 
other than a subsidiary that is an insured depository institution or an 
insurance company.\7\
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    \5\ 12 U.S.C. 1841(a).
    \6\ 12 U.S.C. 1843(k).
    \7\ Section 201(a)(11) also provides that ``financial company'' 
does not include Farm Credit System institutions chartered under and 
subject to the provisions of the Farm Credit Act of 1971, as amended 
(12 U.S.C. 2001 et seq.), or governmental or regulated entities as 
defined under section 1303(20) of the Federal Housing Enterprises 
Financial Safety and Soundness Act of 1992 (12 U.S.C. 4502(20)).
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    Section 201(b) of the Act provides that, for the purposes of 
defining the term ``financial company'' under section 201(a)(11), ``no 
company shall be deemed to be predominantly engaged in activities that 
the Board of Governors has determined are financial in nature or 
incidental thereto for purposes of section 4(k) of the [BHC Act], if 
the consolidated revenues of such company

[[Page 34713]]

from such activities constitute less than 85 percent of the total 
consolidated revenues of such company, as the Corporation, in 
consultation with the Secretary, shall establish by regulation. In 
determining whether a company is a financial company under [Title II], 
the consolidated revenues derived from the ownership or control of a 
depository institution shall be included.'' \8\ A company that is 
predominantly engaged in such activities is a ``financial company'' 
under Title II (unless it is one of the few entities expressly excepted 
under section 201(a)(11) of the Act) and may be subject to the orderly 
liquidation provisions of Title II following certain determinations by 
the Secretary, as discussed above.
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    \8\ 12 U.S.C. 5381(b).
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    While section 201(b) of the Act required the FDIC to issue a rule 
establishing the criteria for determining whether a company is 
predominantly engaged in activities that are financial in nature or 
incidental thereto for purposes of Title II, section 102(b) of the Act 
required the Board of Governors to issue a regulation establishing the 
criteria for determining whether a company is predominantly engaged in 
financial activities for purposes of Title I. Both sections 102(b) and 
201(b) of the Act indicate that the determination of whether an 
activity is financial is based upon section 4(k), and since the Board 
of Governors is the agency with primary responsibility for interpreting 
and applying section 4(k), the FDIC coordinated its rulemaking pursuant 
to section 201(b) of the Act with the Board of Governors' rulemaking 
pursuant to section 102(b) of the Act.
    In accordance with the authority granted to it by section 102(b), 
the Board of Governors published on February 11, 2011, a notice of 
proposed rulemaking titled ``Definitions of `Predominantly Engaged in 
Financial Activities' and `Significant' Nonbank Financial Company and 
Bank Holding Company'' (``Board of Governors' first NPR'').\9\ The 
Board of Governors' first NPR proposed criteria for determining whether 
a company is ``predominantly engaged in financial activities'' for 
purposes of determining if the company is a nonbank financial company 
under Title I of the Act.\10\ The Board of Governors' first NPR 
generally defined the term ``financial activity'' by reference to 12 
CFR 225.86 and section 4(k)(1)(A) of the BHC Act. 12 CFR 225.86 lists 
each activity that the Board of Governors has determined is financial 
in nature or incidental thereto. Section 4(k)(1)(A) of the BHC Act 
provides authority for additional activities to be designated as 
financial in nature or incidental thereto.
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    \9\ 76 FR 7731 (February 11, 2011).
    \10\ Under section 113 of the Act, the Financial Stability 
Oversight Council (``Council'') may designate a nonbank financial 
company for supervision by the Board of Governors if the Council 
determines that material financial distress of the company, or the 
nature, scope, size, scale, concentration, interconnectedness, or 
mix of the company's activities, could pose a threat to the 
financial stability of the United States.
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    On March 23, 2011, the FDIC published a notice of proposed 
rulemaking in the Federal Register titled ``Orderly Liquidation 
Authority'' (``FDIC's first NPR'').\11\ The FDIC's first NPR was 
intended to provide clarity and certainty with respect to how key 
components of the orderly liquidation authority would be implemented 
and to ensure that the liquidation process under Title II reflects the 
Act's mandate of transparency with respect to the liquidation of 
covered financial companies. The FDIC's first NPR proposed, among other 
things, criteria for determining if a company is predominantly engaged 
in activities that are financial in nature or incidental thereto for 
purposes of Title II.
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    \11\ 76 FR 16324 (March 23, 2011).
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    These criteria were set forth in section 380.8 of the FDIC's first 
NPR (``section 380.8''). Section 380.8 generally provided that a 
company is predominantly engaged in financial activities for purposes 
of Title II if: (i) At least 85 percent of the total consolidated 
revenues of the company for either of its two most recent fiscal years 
were derived, directly or indirectly, from financial activities, or 
(ii) based upon all the relevant facts and circumstances, the FDIC 
determines that the consolidated revenues of the company from financial 
activities constitute 85 percent or more of the total consolidated 
revenues of the company. Like the Board of Governors' first NPR, the 
FDIC's first NPR defined the term ``financial activity'' by reference 
to 12 CFR 225.86 and section 4(k)(1)(A), and also included ownership or 
control of depository institutions. The FDIC adopted provisions of the 
FDIC's first NPR other than section 380.8 in a final rule published in 
the Federal Register on July 15, 2011.\12\
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    \12\ 76 FR 41626 (July 15, 2011).
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    On April 10, 2012, the Board of Governors published a supplemental 
notice of proposed rulemaking (``Board of Governors' second NPR'') that 
amended the definition of financial activities set forth in the Board 
of Governors' first NPR.\13\ The Board of Governors' second NPR was 
published in response to comments that raised questions as to whether 
engaging in certain financial activities in a manner that does not 
comply with certain conditions and limitations applicable to the 
conduct of such activities by bank holding companies should 
nevertheless be considered to be financial activities for purposes of 
Title I of the Act. The Board of Governors' second NPR proposed an 
appendix that listed the activities that it considered to be financial 
activities, including conditions that the Board of Governors had 
determined were necessary to define the activity as ``financial'' for 
purposes of Title I of the Act, but excluding conditions that were 
imposed, either by section 4(k) or the Board of Governors' regulations, 
on the conduct of the activity by a bank holding company for reasons 
such as safety and soundness or compliance with other applicable law.
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    \13\ 77 FR 21494 (April 10, 2012).
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    On June 18, 2012, the FDIC published in the Federal Register and 
requested comment on a supplemental notice of proposed rulemaking that 
clarified the scope of the activities that would be considered 
``financial activities'' for purposes of Title II (``FDIC's second 
NPR''). The FDIC's second NPR proposed to adopt the list of activities 
that the Board of Governors' second NPR determined are ``financial in 
nature'' for purposes of Title I. Similar to the Board of Governors' 
list, the FDIC's list of financial-in-nature activities included those 
conditions determined by the Board of Governors to be necessary to 
define the activity, but excluded those conditions that were imposed on 
the conduct of the activity by a bank holding company for reasons of 
safety and soundness or compliance with other law. The FDIC is now 
adopting as final the criteria proposed in the FDIC's first NPR, as 
amended by the FDIC's second NPR, with certain modifications. As 
discussed in more detail below, the FDIC received 8 comments in 
response to the FDIC's first NPR that addressed the proposed section 
380.8 and 7 comments in response to the FDIC's second NPR.

II. Explanation of the Final Rule

    In developing the final rule, the FDIC considered the comments it 
received in response to both the FDIC's first NPR and the FDIC's second 
NPR, consulted with the Secretary's staff as required by section 201(b) 
of the Act, and coordinated with the Board of Governors' staff. The 
FDIC also considered the Board of Governors' final rule defining the 
term ``predominantly engaged in financial activities'' for purposes of 
Title I that was published in the Federal Register on April 5, 2013

[[Page 34714]]

(``Board of Governors' final rule'').\14\ The FDIC's final rule 
includes several modifications to the FDIC's first NPR and the FDIC's 
second NPR, discussed further below, that are intended to address 
matters raised by commenters.
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    \14\ 78 FR 20756 (April 5, 2013).
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A. Predominantly Engaged in Financial Activities

1. The Revenue Tests
    As noted above, section 380.8 as proposed in the FDIC's first NPR 
provided that a company is predominantly engaged in financial 
activities if: (i) At least 85 percent of the total consolidated 
revenues of the company for either of its two most recent fiscal years 
were derived, directly or indirectly, from financial activities (``two-
year test''), or (ii) based upon all the relevant facts and 
circumstances, the FDIC determines that the consolidated revenues of 
the company from financial activities constitute 85 percent or more of 
the total consolidated revenues of the company (``facts and 
circumstances analysis'') (collectively, the ``revenue tests''). Under 
the FDIC's first NPR, a company would not be considered to be 
predominantly engaged in financial activities if the level of such 
company's financial revenues was below 85 percent of its total 
consolidated revenues in both of its two most recent fiscal years. The 
FDIC's first NPR defined ``total consolidated revenues'' as the total 
gross revenues of a company and all entities subject to consolidation 
by the company for a fiscal year, as determined in accordance with 
applicable accounting standards.
    The FDIC received three comments that discussed the revenue tests 
found in section 380.8(a) of the FDIC's first NPR. These commenters 
were generally in favor of the proposal. One comment, for example, 
stated that both the two-year test and the facts and circumstances 
analysis for FDIC determinations found in section 380.8(a) carry out 
the statutory mandates for Title II and are flexible enough as not to 
impose any unnecessary regulatory burden.
    A second commenter supported the two-year test, but expressed the 
opinion that the facts and circumstances analysis should be removed 
from a final rule. This commenter suggested that a facts and 
circumstances analysis is inappropriate with respect to the orderly 
liquidation authority because of the uncertainty it would create.
    The FDIC recognizes the importance of providing certainty with 
respect to the calculation for determining if a company meets either of 
the revenue tests. However, the FDIC notes that the mix of a company's 
revenues may change significantly and quickly as a result of various 
types of transactions or actions, such as a merger, consolidation, 
acquisition, establishment of a new business line, or the initiation of 
a new activity. Moreover, these transactions and actions may occur at 
any time during a company's fiscal year and, accordingly, the effects 
of the transactions or actions may not be reflected in the year-end 
consolidated financial statements of the company for several months. 
Consequently, the facts and circumstances analysis is necessary in 
order to promptly consider the effect of changes in the nature or mix 
of a company's activities as a result of such transactions or actions. 
For these reasons, the final rule retains a two-year test and a facts 
and circumstances analysis.
    However, the final rule removes the reference to the FDIC as the 
entity that will apply the facts and circumstances analysis. This 
change was made in recognition of the provisions of section 203 of the 
Act, which provide that the Federal authorities that will apply these 
revenue tests are the recommending agencies, for purposes of the 
evaluations under section 203(a) of the Act, and the Secretary, for 
purposes of the determination pursuant to section 203(b) of the Act.
2. Scope of Companies That Are Predominantly Engaged in Activities That 
Are Financial Activities for Purposes of Title II
    A number of the comments received by the FDIC addressed the scope 
of section 380.8 and whether certain companies should be eligible for 
resolution under Title II. For example, one commenter stated that the 
list of companies eligible for consideration as systemically important 
should include as many large or interconnected nonbank financial firms 
that pose systemic risk to the financial system as possible. This 
commenter suggested that such a list should include, but not be limited 
to, large investment banks, insurance companies, hedge funds, private 
equity funds, venture capital firms, mutual funds, industrial loan 
companies, special purpose vehicles, and nonbank mortgage origination 
companies.
    Other commenters suggested that certain types of companies should 
be expressly excluded from the orderly liquidation authority. One 
commenter, for example, expressed concerns that section 380.8 did not 
exclude insurers and insurance companies. One commenter argued that 
money market mutual funds and similar self-liquidating entities should 
be excluded. Another commenter argued that excluding money market 
mutual funds from the definition of financial company for Title II 
purposes would be appropriate due to the fact that such funds are 
already subject to ``consolidated supervision and/or heightened 
reporting requirements'' established by the Securities and Exchange 
Commission. Two other commenters expressed the opinion that the FDIC's 
orderly liquidation authority should be limited to institutions that 
are designated as systemically important under Title I of the Act.
    Similarly, two commenters sought clarification that certain 
entities would be excluded from the definition of financial company 
under Title II due to their activities being deemed nonfinancial for 
purposes of the FDIC's second NPR. One commenter sought clarification 
as to whether the activities of a Nationally Recognized Statistical 
Rating Organization (``NRSRO'') would constitute investment advisory 
activities under section 380.8(b)(2)(xi)(B) of the FDIC's second NPR 
and therefore, financial activities. Another commenter sought 
clarification with respect to the activities of credit unions.
    After considering these comments, the FDIC determined it would be 
inappropriate to exclude specific types of entities (other than those 
expressly excluded by section 201(a)(11)) from the definition of 
``financial company'' for purposes of Title II. Title II is clearly 
intended to apply not only to bank holding companies and nonbank 
financial companies supervised by the Board of Governors, but to other 
financial companies as well. With a limited exception,\15\ section 
201(a)(11) contains no express exclusion for insurance companies, money 
market mutual funds, NRSROs, credit unions, or any other companies, nor 
any suggestion that such exclusions were intended. Furthermore, the 
express exclusion of certain types of companies implies that Congress 
intended no other exclusions.
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    \15\ See 12 U.S.C. 5381(a)(11)(B)(iv), Section 201(a)(11)(B)(iv) 
of the Dodd-Frank Act, excepts from the definition of ``financial 
company'' an insurance company that is a subsidiary of a bank 
holding company, a nonbank financial company supervised by the Board 
of Governors, or a company that meets the ``predominantly engaged'' 
test in section 201(a)(11)(B)(iii).
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    In addition, sections 202 and 203 of the Act provide the process 
for making a systemic risk determination with respect to a financial 
company and for determining that a financial company is

[[Page 34715]]

subject to orderly liquidation under Title II. As discussed in section 
I of this Preamble, that process includes an evaluation of several 
factors. The FDIC believes that systemic risk determinations are 
appropriately considered in the recommendation, determination, and 
judicial review stages of the orderly liquidation process described in 
sections 202 and 203 of the Act. Furthermore, the FDIC believes that 
the scope of the companies that would be subject to Title II should not 
be limited by regulation in a manner that is inconsistent with the 
purposes of Title II.
3. Activities That Are Financial in Nature or Incidental Thereto
    Under section 201(a)(11) of the Act, the determination of whether a 
company (other than a bank holding company or a nonbank financial 
company supervised by the Board of Governors) is predominantly engaged 
in financial activities for purposes of Title II is based upon 
activities that the Board of Governors has determined are ``financial 
in nature or incidental thereto'' under section 4(k). As noted above, 
the FDIC's first NPR defined ``financial activity'' to include: (i) Any 
activity, wherever conducted, described in section 225.86 of the Board 
of Governors' Regulation Y (``Regulation Y'') or any successor 
regulation; \16\ (ii) ownership or control of one or more depository 
institutions; and (iii) any other activity, wherever conducted, 
determined by the Board of Governors in consultation with the 
Secretary, under section 4(k)(1)(A) of the BHC Act,\17\ to be financial 
in nature or incidental to a financial activity.
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    \16\ See 12 CFR 225.86.
    \17\ See 12 U.S.C. 1843(k)(1)(A).
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    Two commenters discussed the definition of ``financial activity'' 
found in the FDIC's first NPR and expressed the opinion that the 
activities that should be considered ``financial'' are appropriately 
listed in section 225.86 of Regulation Y. The first commenter supported 
including those activities that have been considered by the Board of 
Governors as ``closely related to banking'' and that are listed in 
sections 225.28(b) and 225.86(a)(2) of Regulation Y.\18\ The commenter 
also stated that the proposed rule should broadly define ``financial 
activities'' to include all activities that have been, or may be, 
determined to be financial in nature under Section 4(k), regardless of, 
(i) where the activity is conducted, (ii) whether a bank holding 
company or foreign banking organization could conduct the activity 
under some legal authority other than section 4(k), and (iii) whether 
any Federal or state law other than section 4(k) may prohibit or 
restrict the conduct of the activity by a bank holding company.
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    \18\ 12 CFR 225.28(b); 225.86(a)(2).
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    One commenter asserted that the FDIC's first NPR failed to define 
the terms used in Title II in a way that provides clarity with respect 
to what companies can be designated or the standards that will be 
considered and applied in making a designation.
    One commenter noted that many of the activities that are financial 
in nature or incidental thereto as proposed in the FDIC's first NPR are 
not of obvious systemic significance to the financial system. The 
commenter argued that a company that derives 85 percent or more of its 
revenues from providing management consulting services, check-courier 
services, or Web site security certificate services would be a 
financial company, but would be an inappropriate candidate for 
resolution under the orderly liquation authority of Title II. This 
commenter suggested that the FDIC include a discussion of the 
importance of systemic concerns in the Title II context, similar to the 
emphasis placed on systemic concerns in the Title I prudential-
supervision context, in order to assure financial markets of the 
accurate applicability of the proposed rule.
    The FDIC notes that before a financial company can be resolved 
under Title II, section 203 of the Act requires a determination that 
the failure of the financial company and its resolution under otherwise 
applicable law would have serious adverse effects on financial 
stability in the United States. Moreover, this rule is limited to 
establishing criteria pursuant to section 201(b) for making a revenue 
calculation to determine whether a company is predominantly engaged in 
financial activities for purposes of Title II.
    In response to the comments received and in an effort to provide 
greater clarity, the FDIC published and requested comment on the FDIC's 
second NPR, which proposed to amend the FDIC's first NPR to further 
refine the definition of financial activities for purposes of Title II. 
The comments that the FDIC received in response to the FDIC's second 
NPR are discussed below.
    In the preamble to the FDIC's second NPR, the FDIC acknowledged 
several important reasons why the term ``financial in nature'' under 
Title II should have the same meaning as it does for purposes of Title 
I. First, any interpretation of ``financial in nature'' under section 
4(k) that is inconsistent with the Board of Governors' interpretation 
could frustrate Congressional intent regarding Title II. Section 204 of 
the Dodd Frank Act states that the intent of Title II is to provide for 
the liquidation of failing financial companies that pose a significant 
risk to the financial stability of the United States in a manner that 
mitigates such risk and minimizes moral hazard. Based upon this 
expression of Congressional intent regarding Title II, and given that 
one of the goals of Title I is to provide the authority to require the 
supervision of certain nonbank financial companies that could pose a 
threat to the financial stability of the United States, the FDIC 
believes that both of these goals can be achieved in a manner 
consistent with Congressional goals if such a key term as ``financial 
in nature'' is given the same meaning in both Titles I and II. The FDIC 
believes that it is important that Titles I and II work together in a 
manner that provides a coherent framework for monitoring and 
supervising the operation of financial companies whose failure could 
have a serious adverse effect on the financial stability of the United 
States, and for liquidating those companies with the least disruption 
to the U.S. financial stability, if any should fail. Second, utilizing 
in Title II an interpretation of ``financial in nature'' that is 
inconsistent with the Title I interpretation could result in confusion 
on the part of companies that may be subject to either or both of 
Titles I and II. For example, if the interpretations are different, a 
company may rely on the Title I interpretation of ``financial in 
nature'' to incorrectly conclude that it is not subject to Title II's 
orderly liquidation authority. Conversely, a company may use the Title 
II interpretation of ``financial in nature'' to incorrectly conclude 
that it is not eligible under the Council's Title I authority to be 
supervised by the Board of Governors and subject to enhanced prudential 
standards.
    For these reasons, the FDIC's second NPR proposed to amend the 
FDIC's first NPR, consistent with the Board of Governors' second NPR 
and the purposes of Title II, to define the term ``financial activity'' 
to include each activity referenced in section 4(k) that the Board of 
Governors has determined is financial in nature or incidental thereto 
but to exclude the conditions or limitations that are imposed on bank 
holding companies engaged in such activities that do not define the 
essential nature of the activity itself.\19\
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    \19\ As noted in the Board of Governors' second NPR, conditions 
that do not define the activity itself include those conditions that 
were imposed to ensure that a bank holding company that conducts the 
activity does so in a safe and sound manner or to comply with 
another provision of law. See 77 FR 21494 (April 10, 2012).

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[[Page 34716]]

A. Scope of Financial Activities

    The FDIC received comments addressing whether the amendments 
contained in the FDIC's second NPR were appropriate. While most 
commenters supported the amended definition of financial activities 
contained in the FDIC's second NPR, one commenter expressed a number of 
concerns with the FDIC's interpretation of the Act and argued that the 
clarification of financial activities in the FDIC's second NPR exceeds 
the rulemaking authority granted to the FDIC under Title II. This 
commenter suggested that the FDIC's second NPR should not be based upon 
the Board of Governors' second NPR, which the commenter asserted is 
flawed and exceeds the statutory authority granted to the Board of 
Governors by Title I.
    In contrast, another commenter supported adoption of the amendments 
proposed in the FDIC's second NPR as they would reduce the possibility 
that systemically significant financial firms would be insulated from 
the reach of the orderly liquidation authority under Title II. This 
commenter argued that the inclusion of the non-definitional conditions 
from section 4(k) and Regulation Y into section 380.8 would raise the 
possibility that a firm could be predominantly engaged in financial 
activities, but immune from orderly liquidation authority resolution 
because the company's activities may not comply with such conditions.
    As noted earlier, section 201(b) of the Act authorizes the FDIC to 
establish, in consultation with the Secretary, standards for 
determining if a company is ``predominantly engaged in activities that 
the Board of Governors has determined are financial in nature or 
incidental thereto for purposes of section 4(k). . . .'' The 
identification of the scope of activities that the Board of Governors 
has determined are financial in nature or incidental thereto for 
purposes of section 4(k) is a necessary requirement for determining 
whether a company is predominantly engaged in such activities for 
purposes of Title II.
    Section 4(k), which was added to the BHC Act by the Gramm-Leach-
Bliley Act (``GLB Act''), authorizes bank holding companies that 
qualify as ``financial holding companies'' to engage in a wide range of 
financial activities.\20\ Section 4(k) defines as ``financial'' a list 
of activities that includes Congressionally-authorized activities added 
by the GLB Act as well as activities that had been previously approved 
by the Board of Governors for bank holding companies pursuant to 
sections 4(c)(8) and 4(c)(13) of the BHC Act, which are incorporated by 
reference. As discussed in the FDIC's second NPR, section 4(k) and the 
Board of Governors' Regulation Y which, in part, implements sections 
4(c)(8) and 4(c)(13) also impose conditions on the conduct of some of 
those activities for safety and soundness reasons or to ensure 
compliance with other laws. Some of the Congressionally-authorized 
activities for financial holding companies, such as lending, overlap 
completely with activities that had been authorized by the Board of 
Governors for bank holding companies. Other Congressionally-authorized 
activities expanded the authorization of activities previously approved 
by the Board of Governors for bank holding companies, such as certain 
insurance activities, by removing the conditions that apply to bank 
holding companies engaging in the activity. Bank holding companies that 
are not financial holding companies may only engage in activities 
previously approved by the Board of Governors under sections 4(c)(8) 
and 4(c)(13) of the BHC Act and are subject to certain conditions.
---------------------------------------------------------------------------

    \20\ 12 U.S.C. 1843(l)(1). To engage in the board range of 
activities authorized by section 4(k), a bank holding company must 
be well-capitalized and well-managed, and its subsidiary insured 
depository institutions must also be well-capitalized and well-
managed and have `satisfactory' ratings under the Community 
Reinvestment Act.
---------------------------------------------------------------------------

    While section 4(k) and Regulation Y are clear with respect to the 
type and scope of activities that are permissible for both financial 
holding companies and bank holding companies, section 201(b) is silent 
as to how the overlapping definitions of financial activities and the 
conditions incorporated in section 4(k) should be applied in 
determining whether companies that are not subject to the BHC Act are 
predominantly engaged in financial activities for purposes of Title II. 
Because sections 201(a)(11) and 201(b) of the Act do not address how to 
apply these overlapping and sometimes inconsistent definitions of 
financial activities or how to apply the conditions incorporated in 
section 4(k) and the Board of Governors' implementing regulations, the 
references in sections 201(a)(11) and 201(b) of the Act to activities 
that the Board of Governors has determined are financial in nature or 
incidental thereto for purposes of section 4(k) are ambiguous. This 
conclusion is consistent with the Board of Governors' conclusion with 
respect to Title I.
    As discussed in the preamble to the Board of Governors' final rule, 
the statutory references to section 4(k) are ambiguous when applied to 
companies other than bank holding companies. Since sections 201(a)(11) 
and 201(b) also reference section 4(k) in determining whether a company 
is predominantly engaged in financial activities for purposes of Title 
II, these same ambiguities that exist in Title I also exist in Title 
II. The Board of Governors is the Federal agency charged with 
interpreting and applying section 4(k). Consequently, the Board of 
Governors' resolution of those ambiguities is a critical guide in 
applying section 4(k) to companies other than bank holding companies 
for purposes of Title II. Consistent with the Board of Governors' 
approach, this ambiguity can be resolved by reference to relevant case 
law. Under Supreme Court precedent, a statutory term defined by cross-
reference to another statute is not alone evidence of clear 
Congressional intent that the implementing agency construe the term 
identically. In Environmental Defense v. Duke Energy Corp.\21\ 
(``Duke''), the Court held that the general presumption of statutory 
construction ``that the same term has the same meaning when it occurs 
here and there in a single statute,'' may be overcome where context 
indicates that the term was intended to be construed differently.\22\
---------------------------------------------------------------------------

    \21\ 549 U.S. 561 (2007).
    \22\ See id. at 574, 576, citing Atlantic Cleaners & Dyers, Inc. 
v. United States, 286 U.S. 427, 433. The Court considered whether 
the Environmental Protection Agency (``EPA'') was required to 
interpret the term ``modification'' identically where one section of 
the Clean Air Act (``CAA'') defined ``modification'' ``as defined 
in'' a different section of the CAA. The Court held that when 
considering whether a term that is used in different statutes must 
be interpreted identically, ``context counts.'' See id. at 575-76, 
citing United States v. Cleveland Indians Baseball Co., 532 U.S. 
200, 213 (2001). The Court considered the context in which the term 
``modification'' was used and the legislative history of the 
relevant statutory provisions and found no evidence of Congressional 
intent that ``modification'' be construed identically by the EPA 
despite the cross-reference to the term in the statute because the 
contexts in which the term was used and the purposes of each use 
were different.
---------------------------------------------------------------------------

    Consistent with the Court's analysis in Duke, the FDIC believes 
that neither the text, the context in which the text appears, nor the 
legislative purpose or history of the Dodd-Frank Act suggests that 
Congress intended that a nonbank company must engage in financial 
activities in compliance with all the conditions and requirements 
imposed under section 4(k) and the Board of Governors' implementing 
regulations in order for the company to be considered

[[Page 34717]]

to be engaged in the relevant financial activity. A reading of Title II 
that limits the scope of companies considered to be ``predominantly 
engaged'' in financial activities to only those companies that conduct 
activities in compliance with the conditions applicable to bank holding 
companies would undermine the purpose of Title II and the authority 
granted by Congress to the Secretary to order the resolution under 
Title II of an organization whose failure might reasonably threaten 
U.S. financial stability.\23\ Moreover, defining financial activities 
for purposes of Title II to include all of the conditions imposed on 
the conduct of the activities by bank holding companies for purposes of 
safety and soundness or to ensure their compliance with other laws 
would lead to an absurd result. Specifically, some companies that are 
predominantly engaged in financial activities could avoid orderly 
liquidation under Title II simply by choosing not to abide by one or 
more of these conditions that are unrelated to whether the activity is 
a financial activity.
---------------------------------------------------------------------------

    \23\ See Committee on Banking, Housing, and Urban Affairs 
Report, S. Rep. No. 111-176, April 30, 2010, page 5, citing 
Testimony of Timothy Geithner, Secretary of the Treasury, to the 
Banking Committee, June 18, 2009.
---------------------------------------------------------------------------

    Furthermore, the FDIC also continues to believe that it is 
important that the definition of ``financial activities'' for purposes 
of Title II remain as similar as practicable to the definition of 
``financial activities'' for purposes of Title I. In both the FDIC's 
first NPR and the FDIC's second NPR, the FDIC noted the benefits and 
importance of maintaining symmetry with the definition in Title I. For 
example, utilizing in Title II an interpretation of ``financial in 
nature'' that is inconsistent with the Title I interpretation could 
result in confusion on the part of companies that may be subject to 
either or both of Titles I and II. As noted above, the FDIC believes 
that it is important that Titles I and II work together in a manner 
that provides a coherent framework for monitoring and supervising the 
operation of financial companies whose failure could have a serious 
adverse effect on the financial stability of the United States, and for 
liquidating such companies with the least disruption to the U.S. 
financial stability, if any should fail. The FDIC received a number of 
comments in response to both the FDIC's first NPR and the FDIC's second 
NPR that supported this approach. For these reasons, the FDIC believes 
that consistency, to the extent possible, with the Board of Governors' 
interpretation of what constitutes ``financial activities'' for 
purposes of Title I is appropriate. As discussed in further detail 
below, the FDIC has determined that the modifications adopted by the 
Board of Governors in its final rule were appropriate and consistent 
with the purposes and goals of Title II and has therefore adopted them 
in this final rule.

B. Description of ``Financial Activities''

    As an initial matter, the FDIC notes that the only purpose of this 
rulemaking is to establish criteria for determining which activities 
are financial. This rulemaking does not designate any specific entity 
for resolution under Title II. As discussed earlier in section I of 
this Preamble, sections 202 and 203 of the Act govern the appointment 
of the FDIC as receiver for a covered financial company. Under those 
sections, the authority to appoint the FDIC as receiver of a financial 
company rests with the Secretary, in consultation with the President.
    The final rule retains the approach set forth in the FDIC's second 
NPR with certain modifications, including, the restoration of several 
conditions that the FDIC proposed to remove in the FDIC's second NPR. 
These conditions are the same conditions that were reinstated in the 
Board of Governors' final rule defining ``financial activities'' for 
purposes of Title I, and one condition related to finder activities. As 
discussed in more detail below, the FDIC restored conditions relating 
to the activities of providing agency transactional services, engaging 
as principal in derivative transactions, data processing, management 
consulting services, investing as part of a bona fide underwriting, or 
merchant or investment banking activity, and acting as a finder. The 
final rule also retains all of the conditions set forth in the 
description of the financial activities listed in section 4(k), other 
than two conditions with respect to bona fide underwriting or merchant 
or investment banking activities, and one with respect to insurance 
company portfolio investments, which do not define the activity itself. 
This approach in the final rule is consistent with the Board of 
Governors' final rule.
    Because section 4(k) references financial activities that were 
authorized by the Board of Governors under various authorities at 
different points in time, certain of the financial activities listed 
below overlap with, or are wholly subsumed by, other financial 
activities permissible for financial holding companies. The FDIC did 
not receive any comments in response to the FDIC's second NPR that 
addressed overlapping and redundant activities. To reduce the 
ambiguity, however, created by the overlapping and redundant 
descriptions, the final rule, like the Board of Governors' final rule, 
provides that a company that engages in a particular activity in a 
manner that does not comply with the narrower definition of the 
particular activity will be considered to be engaged in a financial 
activity if its activities are captured by the broader description of 
the activity. Consistent with the FDIC's second NPR, the final rule 
includes such overlapping and redundant activities, in order to ensure 
completeness.
1. Financial Activities Added to the BHC Act by the Gramm-Leach-Bliley 
Act
    The following financial activities were authorized for financial 
holding companies and added to section 4(k) by the Gramm-Leach-Bliley 
Act (``GLB Act'').
 Lending, Exchanging, Transferring, Investing for Others, and 
Safeguarding Money or Securities
    The activities of lending, exchanging, transferring, investing for 
others, or safeguarding money or securities are specifically 
enumerated, without conditions, in section 4(k).\24\ The Board of 
Governors' determined that the activity of ``investing for others'' 
includes buying, selling, or otherwise acquiring and disposing of money 
or securities in order to benefit from changes in the value of those 
assets and distribute profits to investors. These activities are often 
conducted by investment advisors, wealth managers, limited purpose 
trust companies, mutual funds, hedge funds, private equity funds, real 
estate investment trusts, and similar vehicles.
---------------------------------------------------------------------------

    \24\ 12 U.S.C. 1843(k)(4)(A).
---------------------------------------------------------------------------

    One commenter argued that open-end investment companies (e.g., 
mutual funds) are not engaged in financial activities as defined in 
section 4(k) of the BHC Act. However, the Board of Governors' 
regulations have long authorized bank holding companies to engage in 
organizing, sponsoring, and managing mutual funds and closed-end 
investment companies and to serve as an investment adviser to mutual 
funds and closed-end investment companies and others using the 
authority described in section 4(k).\25\ Prior to enactment of

[[Page 34718]]

the GLB Act in 1999, the Board of Governors permitted bank holding 
companies to own more than 5 percent (and up to 25 percent) of the 
shares of an open-end investment company--a determination that 
represents a finding that open-end investment companies engage in a 
financial activity.\26\ The investment limitation reflects a decision 
by the Board of Governors that the public benefits of allowing a bank 
holding company to own more than 25 percent of the shares of a mutual 
fund did not outweigh the potential costs consequent with treating the 
mutual fund as a subsidiary of the bank holding company. Under the BHC 
Act, the decision to allow a bank holding company to own more than 5 
percent of the shares of a mutual fund is sufficient to indicate that 
the mutual fund itself, which is a company, is engaged in a financial 
activity.\27\ The activity of organizing, sponsoring, and managing a 
mutual fund was also determined to be usual in connection with the 
transaction of banking or other financial operations abroad prior to 
November 11, 1999, and, thus, is incorporated as a financial activity 
in section 4(k) by the GLB Act.\28\ The Board of Governors' regulations 
prohibit bank holding companies from exerting managerial control over 
the companies in which the mutual fund invests and require bank holding 
companies to reduce their ownership to less than 25 percent of the 
equity of the mutual fund within one year of sponsoring the fund.\29\ 
These limitations were imposed to prevent circumvention of the 
investment restrictions in the BHC Act.
---------------------------------------------------------------------------

    \25\ See, e.g., 12 CFR 211.10(a)(11); 225.28(b)(6)(i); 
225.86(b)(3); and 225.125. See also, e.g., Mellon Bank Corporation, 
79 Federal Reserve Bulletin 626 (1993), and Bayerische Vereinsbank 
AG, 73 Federal Reserve Bulletin 155 (1987).
    \26\ See letter dated June 24, 1999, to H. Rodgin Cohen, Esq., 
Sullivan & Cromwell (First Union Corporation), from Jennifer J. 
Johnson, Secretary of the Board of Governors of the Federal Reserve 
System. See also 12 CFR 225.86(b)(3).
    \27\ Bank holding companies are generally prohibited from owning 
more than 5 percent of the voting shares of a company unless that 
company is engaged only in a financial activity. See 12 U.S.C. 
1843(a).
    \28\ 12 U.S.C. 1843(k)(4)(G); 12 CFR 225.86(b)(3).
    \29\ 12 CFR 225.86(b)(3).
---------------------------------------------------------------------------

    Moreover, section 4(k) itself authorizes all of the component 
activities in which a mutual fund engages--investing for others,\30\ 
merchant banking,\31\ investment advice,\32\ and underwriting \33\--as 
financial. These activities are defined as financial under section 4(k) 
separately from, and in addition to, those activities previously 
approved by the Board of Governors as being so closely related to 
banking as to be a proper incident thereto, or usual in connection with 
the transaction of banking or other financial operations abroad, which 
are incorporated into the definition of financial activities in section 
4(k).\34\
---------------------------------------------------------------------------

    \30\ 12 U.S.C. 1843(k)(4)(A).
    \31\ 12 U.S.C. 1843(k)(4)(H).
    \32\ 12 U.S.C. 1843(k)(4)(C).
    \33\ 12 U.S.C. 1843(k)(4)(E).
    \34\ In amending Regulation Y consistent with the GLB Act, the 
Board of Governors added the financial activities added to section 
4(k) by the GLB Act and noted that in light of the passage of the 
GLB Act ``securities underwriting, dealing, and market making . . . 
is authorized for financial holding companies in a broader form'' 
than had previously been permitted. See 65 FR 14440, 14443, 14435 
(March 17, 2000).
---------------------------------------------------------------------------

    Section 4(k) specifically defines the activities of underwriting, 
dealing in, or making a market in securities as a financial activity, 
which includes key components of sponsoring and distributing shares of 
mutual funds and investment companies. Section 4(k) also specifically 
enumerates as financial activities providing financial, investment, and 
economic advisory services and investing for others, which includes 
buying, selling, or otherwise acquiring and disposing of money or 
securities in order to benefit from changes in the value of those 
assets and distributing the profits to investors. Similarly, section 
4(k) authorizes merchant banking activities--which represent 
investments made for the purpose of profiting from price appreciation--
as financial.
    The fact that the Board of Governors has imposed prudential 
conditions on bank holding companies engaged in the activity of 
organizing, sponsoring, or managing a mutual fund does not negate the 
fact that the activity is financial for purposes of section 4(k).\35\
---------------------------------------------------------------------------

    \35\ As noted previously, bank holding companies are generally 
prohibited from owning more than 5 percent of the voting shares of a 
company unless that company is engaged only in a financial activity. 
See 12 U.S.C. 1843(a).
---------------------------------------------------------------------------

 Insurance Activities
    Insuring, guaranteeing, or indemnifying against loss, harm, damage, 
illness, disability, or death, or providing and issuing annuities, and 
acting as principal, agent, or broker for purposes of the foregoing, in 
any state, are financial activities specifically enumerated in section 
4(k).\36\
---------------------------------------------------------------------------

    \36\ 12 U.S.C. 1843(k)(4)(B). In amending Regulation Y, the 
Board of Governors noted that section 4(k)(4) authorized financial 
activities, including ``activities that previously have not been 
permissible for bank holding companies, such as acting as principal, 
agent, or broker for purposes of insuring, guaranteeing, or 
indemnifying against loss, harm, damage, illness, disability, or 
death, and issuing annuity products. Permissible insurance 
activities as principal include reinsuring insurance products. A 
financial holding company acting under that section may conduct 
insurance activities without regard to the restrictions on the 
insurance activities imposed on bank holding companies under section 
4(c)(8).'' See 65 FR 14433, 14435 (March 17, 2000).
---------------------------------------------------------------------------

     Financial, Investment, and Economic Advisory Services
    Financial, investment, and economic advisory services are financial 
activities specifically enumerated in section 4(k).\37\ These 
activities may be provided individually or in combination and include 
discretionary and non-discretionary investment advisory activities. 
This broad authorization to provide financial, investment, or economic 
advisory services also includes activities that the Board of Governors 
determined were closely related to banking. For example, the Board of 
Governors previously determined that acting as an investment or 
financial advisor to any person was closely related to banking, 
including, without limitation, the activities of sponsoring, 
organizing, and managing a closed-end investment company, such as a 
hedge fund, and furnishing general economic information and advice.\38\ 
The Board of Governors also previously determined that providing 
administrative and other services to mutual funds could be provided in 
connection with acting as an investment or financial advisor as 
activities that were closely related to banking as described further 
below.
---------------------------------------------------------------------------

    \37\ 12 U.S.C. 1843(k)(4)(C).
    \38\ See 12 CFR 225.28(b)(6) and 225.125.
---------------------------------------------------------------------------

     Issuing or Selling Instruments Representing Interests in 
Pools of Bank-Permissible Assets
    Issuing or selling instruments representing interests in pools of 
assets permissible for a bank to hold directly is a financial activity 
specifically enumerated in section 4(k).\39\
---------------------------------------------------------------------------

    \39\ 12 U.S.C. 1843(k)(4)(D).
---------------------------------------------------------------------------

 Underwriting, Dealing, and Market Making
    Underwriting, dealing in, or making a market in securities is a 
financial activity specifically enumerated in section 4(k) of the BHC 
Act,\40\ which includes sponsoring and distributing all types of mutual 
funds and investment companies.\41\
---------------------------------------------------------------------------

    \40\ 12 U.S.C. 1843(k)(4)(E).
    \41\ See H.R. Rep. No. 106-434 at 153 (1999) (Conf. Rep.)
---------------------------------------------------------------------------

 Merchant Banking
    Section 4(k)(4)(H) of the BHC Act describes the financial activity 
of acquiring or controlling shares, assets or ownership interests, 
including debt or equity securities, in a company engaged in any 
activity not authorized under section 4 of the BHC Act ``as part of a 
bona fide underwriting or merchant or investment banking activity, 
including investment activities engaged in for the purpose of 
appreciation and ultimate

[[Page 34719]]

resale or disposition of the investment'' \42\ (``merchant banking''). 
Section 4(k)(4)(H) imposes several requirements on financial holding 
companies seeking to engage in merchant banking activities. In 
particular, (i) the shares may not be acquired or held by a depository 
institution; (ii) the shares must be acquired and held by a securities 
affiliate or an affiliate thereof, or in the case of a financial 
holding company that has an insurance company affiliate, by an 
affiliate that provides investment advice to an insurance company and 
is registered pursuant to the Investment Advisers Act of 1940, or an 
affiliate thereof; (iii) the shares must be held as part of a bona fide 
underwriting or merchant or investment banking activity, including 
investment activities engaged in for the purpose of appreciation and 
ultimate resale or disposition of the investment; (iv) the shares are 
held for a period of time to enable the sale or disposition on a 
reasonable basis consistent with the financial viability of the 
company's underwriting, merchant, or investment banking activities; and 
(v) during the period the shares are held, the bank holding company 
does not routinely manage or operate the company except as may be 
necessary to obtain a reasonable return on investment upon resale or 
disposition.\43\
---------------------------------------------------------------------------

    \42\ 12 U.S.C. 1843(k)(4)(H).
    \43\ See id.
---------------------------------------------------------------------------

    The Board of Governors determined in its final rule that the 
condition in section 4(k)(4)(H) requiring that the shares only be held 
for a period of time to enable their sale or disposition on a 
reasonable basis consistent with the financial viability of the 
company's merchant banking activities is an essential element of a bona 
fide merchant banking activity. Thus, this condition is also reflected 
in this final rule. Bona fide merchant banking activities involve 
investing with the intent to sell the investment at some later point in 
time at which a profit is expected to be realized. For example, 
companies such as hedge funds, mutual funds, and private equity firms 
\44\ that are engaged in bona fide merchant banking activities 
typically make investments in companies that they believe will increase 
in value over time and that can be resold at a profit. Hedge funds, 
mutual funds, and private equity funds invest with the expectation of 
selling those instruments at a future date in order to realize profits 
consistent with a particular investment strategy rather than for the 
purpose of owning and operating the business.
---------------------------------------------------------------------------

    \44\ See H.R. Rep. No. 106-434 at 154 (1999) (Conf. Rep.) 
(describing the merchant banking authority under section 4(k)(4)(H) 
as authorizing a financial holding company (``FHC'') to acquire an 
ownership interest ``in an entity engaged in any kind of trade or 
business whatsoever . . . whether acting as principal, on behalf of 
one or more entities (e.g., as adviser to a fund, regardless of 
whether the FHC is also an investor in the fund), including entities 
that the FHC controls (other than a depository institution or a 
subsidiary of a depository institution), or otherwise.'').
---------------------------------------------------------------------------

    The Board of Governors and the Secretary of the Treasury jointly 
issued regulations adopting holding periods for merchant banking 
investments by financial holding companies pursuant to section 
4(k)(4)(H).\45\ Specific time periods are not set forth in section 
4(k). As such, the Board of Governors did not include a condition on 
holding periods in the definition of merchant banking in the Board of 
Governors' final rule for purposes of Title I. Similarly, the FDIC has 
not included such a condition in this final rule. However, the Board of 
Governors noted in the preamble to the Board of Governors' final rule 
that the time periods adopted by the Board of Governors and the 
Secretary are instructive in determining whether a nonbank company is 
engaged in bona fide merchant banking activities under Title I. Thus, 
for purposes of determining whether a nonbank company is predominantly 
engaged in financial activities under Title I, nonbank companies that 
acquire and hold shares for the period permitted for financial holding 
companies under the Board of Governors' regulations are presumed to 
hold the shares for the purpose of appreciation and ultimate resale or 
disposition in accordance with the condition in section 4(k)(4)(H). 
Similarly, for purposes of this final rule under Title II, shares held 
for the period permitted for financial holding companies under the 
Board of Governors' regulations generally will be treated as held for 
the purpose of appreciation and ultimate resale or disposition in 
accordance with the condition in section 4(K)(4)(H). This approach will 
help companies determine whether they are predominantly engaged in 
financial activities.
---------------------------------------------------------------------------

    \45\ See 12 CFR 225.172 and 12 CFR 1500.3, respectively.
---------------------------------------------------------------------------

    The Board of Governors recognized in its final rule that some 
investment vehicles may hold shares for longer periods as part of a 
bona fide merchant banking activity consistent with the vehicle's 
investment strategy. For this reason, the Board of Governors' final 
rule permitted the Financial Stability Oversight Council, with respect 
to the definition of a ``nonbank financial company'' for purposes of 
Title I, or the Board of Governors, with respect to the definition of a 
``significant nonbank financial company'', to determine, on a case-by-
case basis, whether a company that acquires and holds shares for a 
period of time greater than the period permissible for a financial 
holding company is engaged in bona fide merchant banking activities for 
purposes of determining whether the company is predominantly engaged in 
financial activities under Title I. Similarly, this final rule permits 
the recommending agencies and the Secretary to determine on a case-by-
case basis, whether a company that acquires and holds shares for a 
period of time greater than the period permissible for a financial 
holding company is engaged in bona fide merchant banking and, 
therefore, a financial activity for purpose of Title II.
    The Board of Governors' final rule clarifies that the prohibition 
in section 4(k)(4)(H) on routinely managing a portfolio company, other 
than for purposes of recognizing a reasonable return on resale or 
disposition, is an essential element of bona fide merchant banking 
activities. As previously discussed, companies engaging in these 
activities purchase shares of portfolio companies to recognize an 
ultimate profit, rather than to engage in the underlying activity in 
which the portfolio company engages as its primary business activity. 
Routinely managing the companies, other than for the goal of 
recognizing a reasonable return, may indicate a strategic investment in 
the operations of another firm. This prohibition is included in the 
final rule for purposes of Title II.
    Section 4(k) does not define the statutory prohibition of routinely 
managing a portfolio company. The regulations issued by the Board of 
Governors and the Secretary governing the merchant banking activities 
of financial holding companies provide guidance on the statutory 
prohibition of routinely managing a portfolio company in connection 
with a bona fide merchant banking activity. The Board of Governors 
determined in its final rule that such regulations are instructive in 
determining whether a nonbank company is engaged in bona fide merchant 
banking activities for purposes of Title I. The FDIC has determined to 
adopt a similar approach for purposes of this final rule. Therefore, 
for purposes of determining whether a company is engaged in a bona fide 
merchant banking activity under Title II, companies that comply with 
the Board of Governors' guidance regarding the limitations on managing 
or operating a

[[Page 34720]]

portfolio company generally will be treated as engaged in a bona fide 
merchant banking activity. This approach will reduce burden on 
companies attempting to determine whether they, or certain of their 
counterparties,\46\ are predominantly engaged in financial activities.
---------------------------------------------------------------------------

    \46\ See id.
---------------------------------------------------------------------------

    By contrast, the Board of Governors' final rule concluded that the 
condition in section 4(k)(4)(H) requiring a financial holding company 
engaging in merchant banking activities to have a securities affiliate 
is not an essential element of bona fide merchant banking activities 
for determining whether these activities are financial activities.\47\ 
This is evidenced by the fact that section 4(k) does not require that 
the securities affiliate participate in or play a role with respect to 
these activities. The Board of Governors determined in the Board of 
Governors' final rule that this condition was designed to ensure that 
only those financial holding companies with experience engaging in 
investment, securities, or advisory activities conducted merchant 
banking activities. Accordingly, this condition is not reflected in 
this final rule.
---------------------------------------------------------------------------

    \47\ The legislative history related to Congress's authorization 
of ``underwriting, merchant, and investment banking activities'' 
distinguishes between the activities themselves and certain 
conditions imposed on the conduct of these activities by a financial 
holding company that do not define the activities, such as the 
requirement that a financial holding company have a securities 
affiliate. See Conf. Rep. 106-434, 154 (November 2, 1999). (``The 
authorization of merchant banking activities as provided in new 
section 4(k)(4)(H) of the BHCA is designed to recognize the 
essential role that these activities play in modern finance and 
permits an FHC that has a securities affiliate or an affiliate of an 
insurance company engaged in underwriting life, accident and health, 
or property and casualty insurance, or providing and issuing 
annuities, to conduct such activities.'').
---------------------------------------------------------------------------

    Similarly, the Board of Governors concluded that the condition in 
section 4(k)(4)(H) requiring that shares acquired as part of a bona 
fide merchant banking activity not be acquired or held by a depository 
institution is not an essential element of such activities. This 
restriction was imposed because banks are restricted from investing in 
certain types of companies by statute and regulation, and in 
particular, national banks were prohibited by the GLB Act from engaging 
in merchant banking activities through a financial subsidiary unless 
certain findings were made by the Secretary and the Board of 
Governors.\48\ The Board of Governors concluded that the restriction on 
acquiring or holding investments through a depository institution does 
not define the activity of merchant banking but rather imposes 
conditions on holding the investment through one type of corporate 
affiliate. The condition does not define the activity itself, as 
financial holding companies, which have bank affiliates, engage in 
these activities on a regular basis. Accordingly, the condition is not 
included in this final rule.
---------------------------------------------------------------------------

    \48\ See, e.g., 12 U.S.C. 24, (Seventh); 12 U.S.C. 24, 
(Eleventh); 12 CFR 1.
---------------------------------------------------------------------------

    Finally, section 4(k)(4)(H) provides that shares acquired in 
connection with a bona fide merchant banking activity must be those of 
a company engaged in an activity not authorized under section 4 of the 
BHC Act. This provision provided new authority for bank holding 
companies that qualify as financial holding companies to engage in 
merchant banking activities with regard to nonbanking firms; bank 
holding companies were already authorized under other provisions of 
section 4 of the BHC Act to invest in firms engaged in financial 
activities.\49\ For this reason, the Board of Governors retained this 
reference to an ``activity not authorized under section 4 of the BHC 
Act'' in the description of bona fide merchant banking activities in 
the Board of Governors' final rule. An investment in a company engaged 
in activities otherwise permissible under section 4 would otherwise be 
treated as a financial activity under section 4(k)(1) or other 
provisions of section 4(k). Thus, shares acquired in all types of firms 
in connection with a bona fide merchant banking activity are 
effectively included by section 4(k) within the list of permissible 
financial activities. Consequently, the requirement that shares 
acquired in connection with a bona fide underwriting, merchant, or 
investment banking activity must be those of a company engaged in an 
activity not authorized under section 4 of the BHC Act is included in 
this final rule.
---------------------------------------------------------------------------

    \49\ See 65 FR 16460, 16463-16464 (March 28, 2000), in which the 
Board of Governors noted that the provision in section 4(k)(4)(H) 
that authorizes a financial holding company to invest in any company 
engaged in any activity not authorized pursuant to section 4 of the 
BHC Act ``appears to have been included in recognition of the fact 
that other provisions of the BHC Act permit a financial holding 
company to make investments in companies that conduct financial 
activities without resorting to merchant banking authority.''
---------------------------------------------------------------------------

 Insurance Company Portfolio Investments
    Section 4(k)(4)(I) of the BHC Act authorizes companies engaged in 
certain types of insurance activities to make portfolio investments. In 
particular, financial holding companies are authorized to acquire 
assets or ownership interests, including debt or equity securities, of 
a company or other entity engaged in any activity not authorized by 
section 4(k) if: (i) The shares, assets, or ownership interests are not 
acquired or held by a depository institution or a subsidiary of a 
depository institution; (ii) such shares, assets, or ownership 
interests are acquired and held by an insurance company that is 
predominantly engaged in underwriting life, accident and health, or 
property and casualty insurance (other than credit-related insurance) 
or providing and issuing annuities; (iii) such shares, assets, or 
ownership interests represent an investment made in the ordinary course 
of business of such insurance company in accordance with relevant state 
law governing such investments; and (iv) during the period such shares, 
assets, or ownership interests are held, the bank holding company does 
not routinely manage or operate such company except as may be necessary 
or required to obtain a reasonable return on investment.\50\ The Board 
of Governors determined in its final rule that the conditions in 
section 4(k)(4)(I) requiring that the shares be acquired and held (i) 
by an insurance company engaged in particular activities, and (ii) in 
the ordinary course of business of the acquiring insurance company in 
accordance with relevant state law governing such investments, are 
essential elements of this activity. Insurance company portfolio 
investments were authorized by Congress specifically to permit ``an 
insurance company that is affiliated with a depository institution to 
continue to directly or indirectly acquire or control any kind of 
ownership interest in any company,'' in recognition of the fact ``that 
as part of the ordinary course of business, insurance companies 
frequently invest funds received from policyholders by acquiring most 
or all the shares of stock of a company that may not be engaged in a 
financial activity.'' \51\ Thus, these conditions are reflected in the 
final rule. In contrast to merchant banking activities described in 
section 4(k)(4)(H), which requires a financial holding company engaging 
in such activities to have a securities affiliate, but does not require 
that the securities affiliate play a role in the activities, section 
4(k)(4)(I) requires that the investment activities authorized

[[Page 34721]]

thereunder be conducted by or through an insurance company.
---------------------------------------------------------------------------

    \50\ 12 U.S.C. 1843(k)(4)(I).
    \51\ See H.R. Rep. No. 106-434 at 154 (1999) (Conf. Rep.) 
(further describing section 4(k)(4)(I) as recognizing that ``these 
investments are made in the ordinary course of business pursuant to 
state insurance laws governing investments by insurance companies, 
and are subject to ongoing review and approval by the applicable 
state regulator.''
---------------------------------------------------------------------------

    The Board of Governors determined in its final rule that the 
prohibition in section 4(k)(4)(I) on routinely managing a portfolio 
company, other than for purposes of recognizing a reasonable return on 
the investment, is an essential element of the investment activities 
conducted by insurance companies as well. Thus, this prohibition is 
reflected in this final rule for purposes of Title II. As noted 
previously, insurance companies typically invest policyholder funds in 
other companies in the ordinary course of business pursuant to state 
insurance laws. Routinely managing the companies, other than for the 
purpose of recognizing a return on investment, may indicate a strategic 
investment in the operations of the other company.\52\
---------------------------------------------------------------------------

    \52\ See id. at 155 (noting that ``to the extent an FHC 
participates in the management or operation of a portfolio company, 
such participation would ordinarily be for the purpose of 
safeguarding the investment of the insurance company in accordance 
with applicable state insurance law. This is irrespective of any 
overlap between board members and officers of the FHC and the 
portfolio company.''
---------------------------------------------------------------------------

    Section 4(k)(4)(I) requires that shares acquired pursuant to an 
insurance company's investment activities not be acquired or held by a 
depository institution. The Board of Governors' final rule does not 
identify this condition as an essential element of this activity, and, 
thus, it is not reflected in this final rule. The restriction on 
acquiring or holding investments through a depository institution does 
not define the investment activity described in section 4(k)(4)(I), but 
rather imposes conditions on holding the investment through one type of 
corporate affiliate. As discussed previously, section 4(k)(4)(I) 
requires that the investment activities authorized thereunder be 
conducted by or through an insurance company. In addition, as noted 
previously, banks are restricted from investing in certain types of 
companies by statute and regulation.\53\ The Board of Governors' final 
rule clarifies that the condition does not define the activity itself, 
as insurance companies affiliated with depository institutions engage 
in these activities on a regular basis.\54\ Accordingly, this condition 
is not included in this final rule for purposes of Title II.
---------------------------------------------------------------------------

    \53\ See, e.g., 12 U.S.C. 24, (Seventh); 12 U.S.C. 24, 
(Eleventh); 12 CFR 1.
    \54\ As discussed above, section 4(k)(4)(I) was intended to 
permit ``an insurance company that is affiliated with a depository 
institution to continue to directly or indirectly acquire or control 
any kind of ownership interest in any company if certain 
requirements are met.'' See H.R. Rep. No. 106-434 at 154 (1999) 
(Conf. Rep.).
---------------------------------------------------------------------------

    Finally, as in section 4(k)(4)(H), section 4(k)(4)(I) provides that 
shares acquired by an insurance company in connection with its 
investment activities must be those of a company engaged in an activity 
not authorized under section 4 of the BHC Act. An investment in a 
company engaged in activities otherwise permissible under section 4 
would be treated as a financial activity under section 4(k)(1) or other 
provisions of section 4(k). Thus, investments by insurance companies in 
all types of firms are effectively included by section 4(k) within the 
list of permissible financial activities. Like the Board of Governors' 
final rule, this final rule also includes this condition.
 Lending, Exchanging, Transferring, Investing for Others, 
Safeguarding Financial Assets Other Than Money or Securities, and Other 
Activities
    The activities of lending, exchanging, transferring, investing for 
others, or safeguarding financial assets other than money or 
securities; providing any device or other instrumentality for 
transferring money or other financial assets; and arranging, effecting, 
or facilitating financial transactions for the account of third parties 
are financial activities specifically enumerated in section 4(k)(5) of 
the BHC Act.\55\
---------------------------------------------------------------------------

    \55\ 12 U.S.C. 1843(k)(5). The BHC Act requires the Board of 
Governors to define the extent to which these activities are 
financial in nature or incidental thereto. The Board of Governors 
and the Secretary issued a joint interim rule authorizing such 
activities as permissible for financial holding companies. See 66 FR 
257 (January 3, 2001).
---------------------------------------------------------------------------

2. Financial Activities That Are Closely Related to Banking
    Section 4(k) provides that ``any activity that the Board has 
determined to be so closely related to banking or managing or 
controlling banks as to be a proper incident thereto'' is a financial 
activity.\56\ These activities, as described in more detail below, are 
also included in the definition of ``financial activities'' for 
purposes of Title II.
---------------------------------------------------------------------------

    \56\ 12 U.S.C. 1843(k)(4)(F).
---------------------------------------------------------------------------

Extending Credit and Servicing Loans
    Making, acquiring, brokering, or servicing loans or other 
extensions of credit (including factoring, issuing letters of credit 
and accepting drafts) for the company's account or for the account of 
others were authorized by the Board of Governors as activities that are 
closely related to banking.\57\
---------------------------------------------------------------------------

    \57\ 12 U.S.C. 1843(k)(4)(F); 12 CFR 225.28(b)(1). See 62 FR 
9290, 9305 (February 28, 1997), in which the Board of Governors 
noted that ``[l]ending activities are already broadly defined and 
contain no restrictions.''
---------------------------------------------------------------------------

 Activities Related to Extending Credit
    Activities usual in connection with making, acquiring, brokering, 
or servicing loans or other extensions of credit were authorized by the 
Board of Governors as activities that are closely related to 
banking.\58\ These activities include performing appraisals of real 
estate and personal property (including securities), acting as an 
intermediary for commercial or industrial real estate financing, 
providing check guarantee, collection agency, and credit bureau 
services, engaging in asset management, servicing, and collection 
activities, acquiring debt in default, and providing real estate 
settlement services.\59\
---------------------------------------------------------------------------

    \58\ 12 U.S.C. 1843(k)(4)(F); 12 CFR 225.28(b)(2).
    \59\ Id.
---------------------------------------------------------------------------

    The Board of Governors' regulations impose certain conditions on 
the conduct of these activities that are not relevant for determining 
whether these activities are considered financial for purposes of 
determining whether a firm is predominantly engaged in financial 
activities under Title II. For instance, under the Board of Governors' 
regulations, a bank holding company that is arranging financing for 
commercial or industrial income-producing real estate may not have an 
interest in, participate in managing or developing, or promote or 
sponsor the development of a property for which it is arranging 
financing, or engage in property management or real estate 
brokerage.\60\ These conditions were imposed to clarify that real 
property management and real estate brokerage activities--which were 
not at the time found to be financial activities--are not indirectly 
authorized as permissible for bank holding companies through the 
activity of real estate financing.\61\ As such, the Board of Governors' 
final rule reflects the activity of arranging commercial real estate 
financing without reference to the independent activities of owning, 
managing, developing, or promoting or sponsoring

[[Page 34722]]

development of real estate.\62\ Accordingly, this final rule takes the 
same approach. While neither real estate brokerage nor real estate 
management are financial activities under section 4(k), a company may 
engage in these activities and still be predominantly engaged in the 
financial activity of arranging commercial real estate financing. Under 
the final rule, only revenues associated with this latter activity are 
considered financial for purposes of determining whether a firm is 
predominantly engaged in financial activities.
---------------------------------------------------------------------------

    \60\ 12 U.S.C. 1843(k)(4)(F); 12 CFR 225.28(b)(2)(ii).
    \61\ The Board of Governors first approved the application of a 
bank holding company to engage in real estate equity financing in 
1982. In approving this activity, the Board of Governors noted that 
it had imposed conditions, including that the bank holding company 
not have an interest in, participate in managing or developing, or 
promote or sponsor the development of a property for which it is 
arranging financing, ``to confine the activity . . . to equity 
financing and to prevent [the bank holding company] from engaging in 
real estate development . . .'' See BankAmerica Corporation, 68 
Federal Reserve Bulletin 647 (1982). The activity of arranging 
commercial real estate equity financing was added to the Board of 
Governors' Regulation Y in 1984 and incorporated the limitations 
that the Board of Governors had placed on the activity in the 1982 
order. See 70 Federal Reserve Bulletin 121, 137 (1984).
    \62\ Neither real estate brokerage nor real estate management is 
an activity that is financial in nature. See 12 U.S.C. 1843 note; 
Public Law 111-8, sec. 624 (Mar. 11, 2009).
---------------------------------------------------------------------------

    Acquiring debt in default also is a financial activity for purposes 
of determining whether a firm is predominantly engaged in financial 
activities under Title II as it is an activity that is usual in 
connection with making, acquiring, brokering, or servicing loans or 
other extensions of credit.\63\ Under the Board of Governors' 
regulations, a bank holding company that acquires debt in default must 
divest assets securing the debt that are impermissible for bank holding 
companies to hold within a certain time period, stand only in the 
position of a creditor, not purchase equity of obligors of debt in 
default, and not acquire debt in default secured by shares of a bank or 
bank holding company. These conditions are intended to prevent bank 
holding companies from circumventing the BHC Act and other provisions 
of law. For instance, the condition requiring a bank holding company to 
divest impermissible assets within a certain timeframe was intended to 
distinguish between a bank holding company's acquisition of debt in 
default and its retention of impermissible collateral securing the 
debt.\64\ The conditions requiring the bank holding company to stand 
only in the position of a creditor and not purchase equity of obligors 
of debt in default are intended to prevent a bank holding company from 
acquiring assets in connection with a debt previously contracted the 
ownership of which is prohibited by the BHC Act or other provisions of 
law. The Board of Governors determined in the Board of Governors' final 
rule that these conditions are not related to defining the financial 
nature of the activity of acquiring debt in default. The condition 
requiring that the debt not be secured by shares of a bank or bank 
holding company was imposed to prevent the bank holding company from 
circumventing the BHC Act's requirement that a bank holding company 
obtain approval from the Board of Governors before acquiring control of 
another bank or bank holding company.\65\ For these reasons, these 
conditions are not relevant for determining whether the activity is 
financial for purposes of Title I. Accordingly, the final rule provides 
that the activity of acquiring debt that is in default at the time of 
acquisition is a financial activity for purposes of determining whether 
a company is predominantly engaged in financial activities under Title 
II without reference to these conditions.
---------------------------------------------------------------------------

    \63\ 12 CFR 225.28(b)(2)(vii).
    \64\ See 62 FR 9290, 9305 (February 28, 1997).
    \65\ Id.
---------------------------------------------------------------------------

 Leasing
    Leasing personal or real property, and acting as an agent, broker, 
or adviser for leasing personal or real property were determined to be 
closely related to banking by the Board of Governors.\66\ Under the 
Board of Governors' regulations, permissible leasing must involve a 
lease that is on a nonoperating basis with an initial term of at least 
90 days. In addition, leasing involving real property must have the 
effect of yielding a return that will compensate the lessor for not 
less than the lessor's full investment plus the estimated cost of 
financing the property over the term of the lease, and the property 
must have an estimated residual value that is no more than 25 percent 
of the acquisition cost of the property. The Board of Governors 
determined in the Board of Governors' final rule that these conditions 
serve to distinguish between the financial activity of leasing and the 
nonfinancial activities of real or personal property rental and real 
estate management.\67\ As such, the final rule reflects these 
conditions in defining the activities of leasing and acting as an 
agent, broker, or adviser for personal or real property.
---------------------------------------------------------------------------

    \66\ 12 U.S.C. 1843(k)(4)(F); 12 CFR 225.28(b)(3).
    \67\ See 62 FR 9290, 9306 (February 28, 1997) (``These 
requirements were developed in the course of litigation regarding 
the leasing activities of national banks, and were relied on by the 
courts in distinguishing bank leasing activities from general 
property rental and real estate development businesses. The 
requirement that a lease be nonoperating is also a statutory 
requirement limiting the high residual value leasing activities of 
national banks.'')
---------------------------------------------------------------------------

 Operating Nonbank Depository Institutions
    The activity of owning, controlling, and operating depository 
institutions, including industrial banks, Morris Plan banks, industrial 
loan companies and savings associations that do not qualify as 
``banks'' for purposes of the BHC Act was determined to be closely 
related to banking by the Board of Governors.\68\ While the Board of 
Governors' regulations require that a thrift owned, controlled, or 
operated by a bank holding company be engaged only in deposit-taking 
activities and activities permissible for bank holding companies, the 
final rule does not include these conditions because they are 
inconsistent with section 201(b) of the Dodd-Frank Act, which provides 
that all revenues from the ownership of a depository institution shall 
be considered to be financial for purpose of Title II.
---------------------------------------------------------------------------

    \68\ 12 U.S.C. 1843(k)(4)(F); 12 CFR 225.28(b)(4).
---------------------------------------------------------------------------

 Trust Company Functions
    The activities performed by a trust company (including activities 
of a fiduciary, agency, or custodial nature) that is not a bank for 
purposes of section 2(c) of the BHC Act were determined to be closely 
related to banking by the Board of Governors.\69\
---------------------------------------------------------------------------

    \69\ 12 U.S.C. 1843(k)(4)(F); 12 CFR 225.28(b)(5).
---------------------------------------------------------------------------

 Financial and Investment Advisory Activities
    Acting as an investment or financial advisor to any person was 
determined to be closely related to banking by the Board of 
Governors.\70\ The activity includes, without limitation, serving as a 
registered investment adviser to a registered investment company, 
including sponsoring, organizing, and managing a closed-end investment 
company; furnishing general economic information and advice, general 
economic statistical forecasting services, and industry studies; 
providing advice in connection with mergers, acquisitions, 
divestitures, investments, joint ventures, leveraged buyouts, 
recapitalizations, capital structurings, financing transactions and 
similar transactions; and conducting financial feasibility studies; 
providing information, statistical forecasting, and advice with respect 
to any transaction in foreign exchange, swaps, and similar 
transactions, commodities, and any forward contract, option, future, 
option on a future, and similar instruments; providing educational 
courses and instructional materials to consumers on individual 
financial management matters; and providing tax-planning and tax-
preparation services to any person.\71\
---------------------------------------------------------------------------

    \70\ 12 U.S.C. 1843(k)(4)(F); 12 CFR 225.28(b)(6).
    \71\ Id.
---------------------------------------------------------------------------

 Agency Transactional Services for Customer Investments
    Providing agency transactional services, including providing 
securities

[[Page 34723]]

brokerage services, acting as a riskless principal, providing private 
placement services, and acting as a futures commission merchant were 
determined to be closely related to banking by the Board of 
Governors.\72\
---------------------------------------------------------------------------

    \72\ 12 U.S.C. 1843(k)(4)(F); 12 CFR 225.28(b)(7).
---------------------------------------------------------------------------

    The Board of Governors' Regulation Y imposes conditions on the 
manner in which a bank holding company may conduct securities brokerage 
services, act as riskless principal, provide private placement 
services, and act as a futures commission merchant. For instance, bank 
holding companies providing securities brokerage services under this 
authority are limited to buying and selling securities solely as agent 
for the account of customers and may not conduct securities 
underwriting or dealing activities. Bank holding companies providing 
private placement services under this authority may not purchase or 
repurchase for their own account the securities being placed or hold in 
inventory unsold portions of issues of those securities. Bank holding 
companies acting as riskless principal under this authority are subject 
to conditions with respect to bank-ineligible securities.
    Each of these conditions was intended to prevent a bank holding 
company from engaging in securities underwriting or dealing activities 
in connection with the activities of securities brokerage, private 
placement, or riskless principal, which were impermissible for bank 
holding companies under the Glass-Steagall Act at the time the 
activities were authorized.\73\ The fact that a firm may retain some 
portion of shares in connection with, for example, private placement 
activities, does not affect or negate the financial nature of private 
placement activities. Moreover, as described elsewhere, securities 
underwriting and dealing activities were subsequently determined by 
statute to be financial activities. Thus, the final rule adopts the 
Board of Governors' interpretation, as expressed in the Board of 
Governors' final rule, that the following activities are financial 
without the non-definitional conditions:
---------------------------------------------------------------------------

    \73\ See 62 FR 9290, 9307-9308 (February 28, 1997).
---------------------------------------------------------------------------

    [cir] Providing securities brokerage services (including securities 
clearing and/or securities execution services on an exchange), whether 
alone or in combination with investment advisory services, and 
incidental activities (including related securities credit activities 
and custodial services).
    [cir] Buying and selling in the secondary market all types of 
securities on the order of customers as a ``riskless principal'' in a 
transaction in which the company purchases (or sells) the security for 
its own account to offset a contemporaneous sale to (or purchase from) 
the customer.
    [cir] Acting as agent for the private placement of securities in 
accordance with the requirements of the Securities Act of 1933 (1933 
Act) and the rules of the Securities and Exchange Commission.
    Under the Board of Governors' regulations, a bank holding company 
acting as a futures commission merchant must conduct the activity 
through a separately incorporated subsidiary, the contract must be 
traded on an exchange, and the parent bank holding company may not 
guarantee that subsidiary's liabilities. The Board of Governors' final 
rule does not reflect these conditions, as they were imposed for the 
prudential purpose of limiting the transmission of risk from these 
activities to an insured depository affiliate or the parent bank 
holding company.\74\ Similarly, this final rule does not contain these 
conditions for purposes of Title II.
---------------------------------------------------------------------------

    \74\ Id. at 9309. (``The Board has determined that a . . . 
restriction that prohibits the parent bank holding company from 
guaranteeing or otherwise becoming liable for non-proprietary trades 
conducted by or through its FCM subsidiary . . . effectively 
addresses the Board's concern about a parent bank holding company's 
exposure to an exchange's or clearinghouse's loss sharing rules . . 
. [by protecting] the parent bank holding company from potential 
exposure from customer trades and open-ended contingent liability 
under loss sharing rules . . .'').
---------------------------------------------------------------------------

    The Board of Governors' regulations also contain a broad provision 
authorizing a bank holding company to provide ``transactional services 
for customers involving any derivative or foreign exchange transaction 
that a bank holding company is permitted to conduct for its own 
account.'' \75\ Specifically, the Board of Governors' Regulation Y 
describes the activity as ``[p]roviding to customers as agent 
transactional services with respect to swaps and similar transactions, 
any transaction described in paragraph (b)(8) of this section, any 
transaction that is permissible for a state member bank, and any other 
transaction involving a forward contract, option, futures, option on a 
futures or similar contract (whether traded on an exchange or not) 
relating to a commodity that is traded on an exchange.'' \76\ In the 
FDIC's second NPR, the FDIC proposed removing the requirement that 
agent transactional services on certain commodity derivatives 
transactions be provided only with respect to a commodity that is 
traded on an exchange (regardless of whether the contract being traded 
is traded on an exchange) because the limitation was imposed for safety 
and soundness reasons. In light of comments received, the Board of 
Governors determined in its final rule that this condition, while 
serving a prudential role, also is part of the definition of the 
authorized activity because it prevents a bank holding company from 
engaging in the forward sale of commercial products. Because the 
condition distinguishes the financial activity of engaging in 
derivatives contracts from the commercial sale of assets, the final 
rule includes this condition.
---------------------------------------------------------------------------

    \75\ Id. at 9310.
    \76\ 12 CFR 225.28(b)(7)(v). The Board of Governors' 1997 
rulemaking describes this financial activity as permitting a bank 
holding company to ``. . . act as a broker with respect to forward 
contracts based on a financial or nonfinancial commodity that also 
serves as the basis for an exchange-traded futures contract. This 
permits a bank holding company to act as agent in a forward contract 
that involves the same commodities and assessment of risk that 
underlay the permissible FCM activities of bank holding companies 
without extending this authority to forward contracts for the 
delayed sale of commercial products (such as automobiles, consumer 
products, etc.) or real estate.'' See 62 FR 9290, 9311 (February 28, 
1997).
---------------------------------------------------------------------------

 Investment Transactions as Principal
    Engaging in investment transactions as principal, including 
underwriting and dealing in government obligations and money market 
instruments, investing and trading as principal in foreign exchange and 
derivatives, and buying and selling bullion were determined to be 
closely related to banking by the Board of Governors.\77\ Under the 
Board of Governors' regulations, bank holding companies engaged in 
underwriting and dealing in government obligations and money market 
instruments are subject to the same limitations as would be applicable 
if the activity were performed by member banks.\78\ The Board of 
Governors' final rule does not reflect this limitation because the 
Board of Governors determined that this condition was intended to 
prevent circumvention of the Glass-Steagall Act. It does not define the 
activity of engaging in investment transactions as principal and is, 
therefore, not relevant for determining whether the activity of 
underwriting and dealing in government obligations and money market 
instruments is financial for purposes of determining whether a firm is 
predominantly engaged in financial activities.\79\
---------------------------------------------------------------------------

    \77\ 12 U.S.C. 1843(k)(4)(F); 12 CFR 225.28(b)(8).
    \78\ 12 CFR 225.28(b)(8)(i).
    \79\ 62 FR 9290, 9311 (February 28, 1997).
---------------------------------------------------------------------------

    Under the Board of Governors' regulations, engaging in derivatives

[[Page 34724]]

transactions is a financial activity provided that the derivative 
contract is not a bank-ineligible security, and either the asset 
underlying the contract is a bank permissible asset or the contract 
contains conditions designed to limit the potential that physical 
settlement would occur.\80\
---------------------------------------------------------------------------

    \80\ 12 CFR 225.28(b)(8)(ii)(B).
---------------------------------------------------------------------------

    In the FDIC's second NPR, the FDIC proposed to remove these 
conditions in defining derivatives activities that are financial 
activities. The Board of Governors received comments in response to the 
Board of Governors' second NPR that expressed the view that the 
conditions requiring cash settlement were necessary to distinguish 
between commercial activities involving physically-settled derivatives 
contracts and the types of financial derivative activities conducted by 
financial companies. The Board of Governors noted in its final rule 
that these conditions were originally imposed to reduce the potential 
that bank holding companies would become involved in, and bear the 
risks of, physical possession, transport, storage, and delivery of 
commodities and to ensure that the commodity derivatives business of a 
bank holding company is largely limited to acting as a financial 
intermediary in the facilitation of transactions for customers who use 
or produce commodities or are otherwise exposed to commodity price risk 
as part of their regular business.\81\ In certain instances, the Board 
of Governors has determined that engaging in physically-settling 
commodities, physical commodity trading, energy tolling, and energy 
management services, are activities that are complementary to the 
financial activity of engaging as principal in commodity derivatives 
transactions.\82\ Under section 4(k), complementary activities are 
those that, although not necessarily financial in nature, are so 
meaningfully connected to financial activities that they complement 
those financial activities.
---------------------------------------------------------------------------

    \81\ See 68 FR 39807, 39808 (July 3, 2003).
    \82\ See Board of Governors letters regarding Bank of America 
Corporation (April 24, 2007), Credit Suisse Group (March 27, 2007), 
Fortis S.A./N.V. (September 29, 2006), and Wachovia Corporation 
(April 13, 2006); and Board orders regarding Royal Bank of Scotland 
Group plc, 94 Federal Reserve Bulletin C60 (2008), Societe Generale, 
92 Federal Reserve Bulletin C113 (2006), Deutsche Bank AG, 91 
Federal Reserve Bulletin C54 (2005), JPMorgan Chase & Co., 91 
Federal Reserve Bulletin C57 (2005); Barclays Bank PLC, 90 Federal 
Reserve Bulletin 511 (2004), UBS AG, 90 Federal Reserve Bulletin 215 
(2004), and Citigroup Inc., 89 Federal Reserve Bulletin 508 (2003).
---------------------------------------------------------------------------

    The Board of Governors determined in its final rule that these 
conditions, while serving an important prudential role, are also part 
of the definition of the authorized activity because they distinguish 
these derivatives activities from similar derivatives activities that 
are not conducted as a financial intermediary. Thus, the final rule 
includes, as a financial activity for purposes of Title II, engaging as 
principal in forward contracts, options, futures, options on futures, 
swaps, and similar contracts, whether traded on exchanges or not, based 
on any rate, price, financial asset (including gold, silver, platinum, 
palladium, copper, or any other metal), nonfinancial asset, or group of 
assets, other than a bank-ineligible security \83\ if: (i) A state 
member bank is authorized to invest in the asset underlying the 
contract; \84\ (ii) the contract requires cash settlement; (iii) the 
contract allows for assignment, termination, or offset prior to 
delivery or expiration, and the company makes every reasonable effort 
to avoid taking or making delivery of the asset underlying the 
contract, or receives and instantaneously transfers title to the 
underlying asset, by operation of contract and without taking or making 
physical delivery of the asset; or (iv) the contract does not allow for 
assignment, termination, or offset prior to delivery or expiration and 
is based on an asset for which futures contracts or options on futures 
contracts have been approved for trading on a U.S. contract market by 
the Commodity Futures Trading Commission, and the company makes every 
reasonable effort to avoid taking or making delivery of the asset 
underlying the contract, or receives and instantaneously transfers 
title to the underlying asset, by operation of contract and without 
taking or making physical delivery of the asset.
---------------------------------------------------------------------------

    \83\ The Board of Governors' Regulation Y provides that a bank-
ineligible security is any security that a state member bank is not 
permitted to underwrite or deal in under 12 U.S.C. 24 and 335.
    \84\ State member banks may own, for example, investment grade 
corporate debt securities, U.S. government and municipal securities, 
foreign exchange, and certain precious metals. See 68 FR 39807, 
39808, note 2 (July 3, 2003).
---------------------------------------------------------------------------

    Similarly, engaging as principal in forward contracts, options, 
futures, options on futures, swaps, and similar contracts, whether 
traded on exchanges or not, based on an index of a rate, a price, or 
the value of any financial asset, nonfinancial asset, or group of 
assets, is a financial activity under the Board of Governor's final 
rule only if the contract requires cash settlement. The final rule 
adopts this approach.
    Additionally, investing and trading in foreign exchange is a 
financial activity under the Board of Governors' regulations and is 
thus included in both the Board of Governors' final rule and this final 
rule.
 Management Consulting and Counseling Activities
    The Board of Governors has authorized management consulting as a 
permissible activity under several different authorities, each of which 
are encompassed within the cross-references contained in section 4(k). 
Providing management consulting advice on any matter to unaffiliated 
depository institutions and on any financial, economic, accounting, or 
audit matter to any other company (``financial management consulting 
services'') was determined to be closely related to banking by the 
Board of Governors.\85\ Under the Board of Governors' regulations, bank 
holding companies that engage in financial management consulting 
services also are permitted to provide management consulting services 
generally to any company other than an unaffiliated depository 
institution, on any non-financial matter (``non-financial management 
consulting services''), provided at least 70 percent of the bank 
holding company's total annual revenue derived from all management 
consulting services is derived from financial management consulting 
services. The revenue limitation on providing non-financial management 
consulting services was designed to limit the involvement of bank 
holding companies in the provision of management consulting services on 
non-financial matters to nondepository institutions. The Board of 
Governors determined in its final rule that the limitations on the 
authority of bank holding companies to provide non-financial management 
consulting services does not change the nature of the permissible 
financial management consulting services done within those limits. 
Therefore, for purposes of the final rule, revenues derived from any 
management consulting services to a depository

[[Page 34725]]

institution and any consulting on financial, economic, accounting, or 
audit matters to any company, will be considered financial activities. 
In addition, because a bank holding company may derive up to 30 percent 
of its total annual revenue from non-financial management consulting 
services and still be considered to be engaged in financial management 
consulting activities under the Board of Governors' regulations, for 
purposes of the final rule, up to 30 percent of a nonbank company's 
revenues related to non-financial management consulting services will 
be included in the company's financial revenues.
---------------------------------------------------------------------------

    \85\ 12 U.S.C. 1843(k)(4)(F); 12 CFR 225.28(b)(9)(i). The Board 
of Governors' regulations provide that in conducting management 
consulting advice, bank holding companies are not authorized to 
perform tasks or operations or provide services to client 
institutions either on a daily or continuing basis, except as 
necessary to instruct the client institution on how to perform such 
services for itself. This restriction was designed to limit a bank 
holding company's activities to providing advice rather than other 
services that may involve impermissible activities for bank holding 
companies. For purposes of Title II, revenues derived from providing 
management consulting services to a depository institution and any 
consulting on financial, economic, accounting, or audit matters to 
any company, will be considered financial regardless of other 
services the firm might provide. See 12 CFR 225.28(b)(9)(i), note 
11.
---------------------------------------------------------------------------

    The Board of Governors' regulations also prohibit a bank holding 
company providing financial management consulting services from owning 
or controlling more than 5 percent of the voting securities of a client 
institution or from having a management interlock.\86\ These conditions 
were intended to ensure that a bank holding company does not 
effectively exercise control over a client company with which it has a 
management consulting contract, thereby circumventing the prohibitions 
and notice requirements applicable to bank holding companies seeking to 
acquire a controlling interest in a company engaged in nonbanking 
activities, and to prevent conflicts of interest.\87\ The Board of 
Governors concluded in the its final rule that these conditions also 
serve a definitional role to distinguish management consulting from the 
actual conduct of the commercial activity in which a client firm is 
engaged. These conditions are also included in this final rule.
---------------------------------------------------------------------------

    \86\ See id. See also 62 FR 9290, 9304, 9312 (February 28, 
1997).
    \87\ See 62 FR 9290, 9304, 9312 (February 28, 1997).
---------------------------------------------------------------------------

    The authorization for these activities overlaps with, and is 
largely subsumed under, the broader authority to engage in management 
consulting services that was determined to be usual in connection with 
banking abroad, described below. Therefore, a company that engages in 
management consulting activities in a manner that does not comply with 
the conditions described above will be considered to be engaged in a 
financial activity if its management consulting activities are captured 
by the broader authority.
    Providing employee benefits consulting services to employee 
benefit, compensation and insurance plans, including designing plans, 
assisting in the implementation of plans, providing administrative 
services to plans, and developing employee communication programs for 
plans was determined to be closely related to banking by the Board of 
Governors.\88\ Providing career counseling services also was determined 
to be closely related to banking by the Board of Governors,\89\ subject 
to the condition that the services must be provided to a financial 
organization and individuals currently employed by, or recently 
displaced from, a financial organization; to individuals who are 
seeking employment at a financial organization, or to individuals 
currently employed in or who are seeking positions in the finance, 
accounting, and audit departments of any company. The Board of 
Governors determined in the Board of Governors' final rule that these 
conditions are essential to this activity's being considered financial, 
and thus, this activity is included in the final rule with these 
conditions.
---------------------------------------------------------------------------

    \88\ 12 U.S.C. 1843(k)(4)(F); 12 CFR 225.28(b)(9)(ii).
    \89\ 12 U.S.C. 1843(k)(4)(F); 12 CFR 225.28(b)(9)(iii).
---------------------------------------------------------------------------

 Courier Services and Printing and Selling MICR-Encoded Items
    The activity of providing courier services for: (i) Checks, 
commercial papers, documents, and written instruments (excluding 
currency or bearer-type negotiable instruments) that are exchanged 
among banks and financial institutions, and (ii) audit and accounting 
media of a banking or financial nature and other business records and 
documents used in processing such media was determined to be closely 
related to banking by the Board of Governors.\90\
---------------------------------------------------------------------------

    \90\ 12 U.S.C. 1843(k)(4)(F); 12 CFR 225.28(b)(10)(i).
---------------------------------------------------------------------------

    The activity of printing and selling checks and related documents, 
including corporate image checks, cash tickets, voucher checks, deposit 
slips, savings withdrawal packages, and other forms that require 
Magnetic Ink Character Recognition encoding also was determined to be 
closely related to banking by the Board of Governors.\91\
---------------------------------------------------------------------------

    \91\ 12 U.S.C. 1843(k)(4)(F); 12 CFR 225.28(b)(10)(ii).
---------------------------------------------------------------------------

 Insurance Agency and Underwriting
    Certain insurance activities, including activities related to the 
provision of credit insurance and insurance in small towns were 
determined to be closely related to banking by the Board of 
Governors.\92\ Under the Board of Governors' regulations, bank holding 
companies may engage in these activities, subject to various conditions 
and limitations. The Board of Governors' final rule included these 
conditions and limitations, which are also reflected in this final 
rule. However, the authorization for these activities overlaps with, 
and is largely subsumed under, the general authority to engage in 
insurance underwriting and insurance agency activities discussed above. 
Therefore, a company that engages in insurance activities in a manner 
that does not comply with the conditions described above will be 
considered to be engaged in a financial activity if its insurance 
activities are captured by the general authority.
---------------------------------------------------------------------------

    \92\ 12 U.S.C. 1843(k)(4)(F); 12 CFR 225.28(b)(11).
---------------------------------------------------------------------------

 Community Development Activities
    The activities of making debt and equity investments in 
corporations or projects that are designed primarily to promote 
community welfare, and providing advisory and related services for such 
programs was determined to be closely related to banking by the Board 
of Governors.\93\
---------------------------------------------------------------------------

    \93\ 12 U.S.C. 1843(k)(4)(F); 12 CFR 225.28(b)(12).
---------------------------------------------------------------------------

 Money Orders, Savings Bonds, and Traveler's Checks
    Issuing and selling money orders and similar consumer-type payment 
instruments, selling U.S. savings bonds, and issuing traveler's checks 
were determined to be closely related to banking by the Board of 
Governors.\94\
---------------------------------------------------------------------------

    \94\ 12 U.S.C. 1843(k)(4)(F); 12 CFR 225.28(b)(13).
---------------------------------------------------------------------------

 Data Processing
    Providing data processing services and related activities with 
respect to financial, banking, or economic data was determined to be 
closely related to banking by the Board of Governors.\95\ Under the 
Board of Governors' regulations, a bank holding company's data 
processing activities must comply with the conditions that the hardware 
provided in connection with these services be offered only in 
conjunction with software related to the processing, storage, and 
transmission of financial, banking, or economic data, and that all 
general purpose hardware provided with financial software not 
constitute more than 30 percent of the cost of any packaged offering.
---------------------------------------------------------------------------

    \95\ 12 U.S.C. 1843(k)(4)(F); 12 CFR 225.28(b)(14).
---------------------------------------------------------------------------

    The restrictions on providing hardware as part of providing 
financial data processing services were designed to limit the 
involvement of bank holding companies in the sale of data processing 
hardware, in particular, the sale of general purpose hardware. The 
Board of Governors determined in its final rule that the limitations on 
the authority of bank holding companies to provide hardware as part of 
financial data processing do not change the nature of the permissible 
financial data

[[Page 34726]]

processing done within those limits. For purposes of applying this 
final rule, only that portion of a firm's data processing that involves 
providing financial data processing along with related hardware up to 
the limits imposed on bank holding companies would be considered 
financial activities for purposes of Title II. The provision of 
hardware or nonfinancial data processing beyond those limits would not 
disqualify the financial data processing revenues or assets, but also 
would not be considered financial activities.
 Mutual Fund Administrative Services
    Providing administrative and other services to mutual funds was 
determined to be closely related to banking by the Board of 
Governors.\96\
---------------------------------------------------------------------------

    \96\ 12 U.S.C. 1843(k)(4)(F); 12 CFR 225.86(a)(2)(i).
---------------------------------------------------------------------------

 Owning Shares of a Securities Exchange
    Owning shares of a securities exchange was determined to be closely 
related to banking by the Board of Governors.\97\
---------------------------------------------------------------------------

    \97\ 12 U.S.C. 1843(k)(4)(F); 12 CFR 225.86(a)(2)(ii).
---------------------------------------------------------------------------

 Certification Services
    Acting as a certification authority for digital signatures and 
authenticating the identity of persons conducting financial and 
nonfinancial transactions was determined to be closely related to 
banking by the Board of Governors.\98\
---------------------------------------------------------------------------

    \98\ 12 U.S.C. 1843(k)(4)(F); 12 CFR 225.86(a)(2)(iii).
---------------------------------------------------------------------------

 Providing Employment Histories
    Providing employment histories to third parties for use in making 
credit decisions and to depository institutions and their affiliates 
for use in the ordinary course of business was determined to be closely 
related to banking by the Board of Governors.\99\
---------------------------------------------------------------------------

    \99\ 12 U.S.C. 1843(k)(4)(F); 12 CFR 225.86(a)(2)(iv).
---------------------------------------------------------------------------

 Check-Cashing and Wire-Transmission Services
    Providing check-cashing and wire-transmission services was 
determined to be closely related to banking by the Board of 
Governors.\100\
---------------------------------------------------------------------------

    \100\ 12 U.S.C. 1843(k)(4)(F); 12 CFR 225.86(a)(2)(v).
---------------------------------------------------------------------------

 Postage, Vehicle Registration, Public Transportation Services
    The activities of providing notary-public services, selling postage 
stamps and postage-paid envelopes, providing vehicle registration 
services, and selling public-transportation tickets and tokens, when 
offered in connection with banking services, were determined to be 
closely related to banking by the Board of Governors.\101\
---------------------------------------------------------------------------

    \101\ 12 U.S.C. 1843(k)(4)(F); 12 CFR 225.86(a)(2)(vi).
---------------------------------------------------------------------------

 Real Estate Title Abstracting
    Engaging in real estate title abstracting was determined to be 
closely related to banking by the Board of Governors.\102\
---------------------------------------------------------------------------

    \102\ 12 U.S.C. 1843(k)(4)(F); 12 CFR 225.86(a)(2)(vii).
---------------------------------------------------------------------------

3. Financial Activities That Are Usual in Connection With Banking or 
Other Financial Operations Abroad
    Section 4(k) defines as a financial activity ``engaging, in the 
United States, in any activity that: (i) A bank holding company may 
engage in outside of the United States; and (ii) the Board has 
determined pursuant to section 4(c)(13) of the BHC Act to be usual in 
connection with the transaction of banking or other financial 
operations abroad.'' \103\ For purposes of this final rule, these 
activities are described below.
---------------------------------------------------------------------------

    \103\ 12 U.S.C. 1843(k)(4)(G).
---------------------------------------------------------------------------

 Management Consulting Services
    As noted previously, the Board of Governors has authorized 
management consulting as a permissible activity under several different 
authorities, contained in the cross-references in section 4(k). In 
addition to finding that management consulting services are closely 
related to banking for purposes of section 4(c)(8) of the BHC Act, as 
described earlier, the Board of Governors also determined that 
providing management consulting services is usual in connection with 
the transaction of banking or other financial operations abroad under 
section 4(c)(13) of the BHC Act.\104\ Under the Board of Governors' 
regulations, a bank holding company may provide management consulting 
services, ``including to any person with respect to nonfinancial 
matters, so long as the management consulting services are advisory and 
do not allow the financial holding company to control the person to 
which the services are provided.'' \105\
---------------------------------------------------------------------------

    \104\ 12 U.S.C. 1843(k)(4)(G); 12 CFR 225.86(b)(1).
    \105\ 12 CFR 225.86(b)(1).
---------------------------------------------------------------------------

    In the FDIC's second NPR, the FDIC proposed to define this 
financial activity without regard to the condition that the bank 
holding company not control a client firm because this condition was 
imposed to prevent bank holding companies from circumventing the 
prohibitions and approval requirements in the BHC Act and to prevent 
conflicts of interest, as described previously. However, the Board of 
Governors has determined in the Board of Governors' final rule that 
this condition also serves a definitional role to distinguish 
management consulting from the actual conduct of the activities in 
which a client firm is engaged, which may be commercial in nature. 
Therefore, the FDIC has restored this condition to the definition of 
management consulting activities that will be considered financial for 
purposes of Title II.
 Travel Agency
    Operating a travel agency in connection with providing financial 
services was determined to be usual in connection with the transaction 
of banking or other financial operations abroad.\106\ This activity 
could be conducted in connection with any of the financial activities 
listed in this final rule, such as, for example, engaging in credit 
card activities.\107\
---------------------------------------------------------------------------

    \106\ 12 U.S.C. 1843(k)(4)(G); 12 CFR 225.86(b)(2).
    \107\ See 48 FR 56932, 56933 (December 27, 1983).
---------------------------------------------------------------------------

 Mutual Fund Activities
    Organizing, sponsoring, and managing a mutual fund was determined 
to be usual in connection with the transaction of banking or other 
financial operations abroad.\108\ Under the Board of Governor' 
regulations, bank holding companies are prohibited from exerting 
managerial control over the companies in which the mutual fund invests 
and must reduce their ownership to less than 25 percent of the equity 
of the mutual fund within one year of sponsoring the fund. The Board of 
Governors determined in the Board of Governors' final rule that these 
conditions do not define the essential nature of organizing, 
sponsoring, or managing a mutual fund. Rather, they were imposed to 
prevent circumvention of the investment restrictions in the BHC 
Act.\109\ Therefore, they are not reflected in this final rule.
---------------------------------------------------------------------------

    \108\ 12 U.S.C. 1843(k)(4)(G); 12 CFR 225.86(b)(3).
    \109\ Furthermore, the Board of Governors' regulations governing 
a financial holding company's merchant banking activities authorizes 
the financial holding company to own all of the voting shares of a 
fund, but no more than 25 percent of the equity of the fund, which 
demonstrates that section 4(k) authorizes financial holding 
companies to control funds. The limitation on a financial holding 
company's equity interest in a fund was a prudential limitation 
imposed to limit the potential losses to which the financial holding 
company may be exposed.
---------------------------------------------------------------------------

 Commercial Banking Activities
    Engaging in commercial banking and other banking activities was 
determined to be usual in connection with the transaction of banking or 
other financial operations abroad.\110\ Commercial banking activities 
include the ownership of a bank, as well as engaging in activities and 
making investments

[[Page 34727]]

permissible for a bank.\111\ The purchase of liquidity instruments, 
such as U.S. government securities, is an activity that is permissible 
for a bank. A nonbank company's purchase of liquidity instruments would 
be included in the company's financial revenues.
---------------------------------------------------------------------------

    \110\ 12 CFR 211.10(a)(1).
    \111\ The Board of Governors' regulations implementing section 
4(k) do not include this activity because the regulations were 
intended to identify the activities that may be conducted using the 
post-transaction notice procedures. In the preamble to the final 
rule implementing section 4(k), the Board of Governors expressed the 
view that ``the GLB Act did not authorize a financial holding 
company to conduct commercial and other banking activities in the 
United States by using the post-transaction notice procedure.'' 66 
FR 400, 405 (January 3, 2001). The fact that post-transaction notice 
procedures are not available for commercial or other banking 
activities does not impact the conclusion that engaging in 
commercial and other banking activities is a financial activity for 
purposes of determining whether a firm is predominantly engaged in 
financial activities under Title II.
---------------------------------------------------------------------------

4. Activities That Are Incidental to Financial Activities
 Finder Activities
    Acting as a finder in bringing together one or more buyers and 
sellers of any product or service for transactions that the parties 
themselves negotiate and consummate has been determined to be an 
activity that is incidental to a financial activity by the Board of 
Governors under section 4(k). Under regulations issued by the Board of 
Governors, acting as a finder includes providing any or all of the 
following services through any means: (a) Identifying potential 
parties, making inquiries as to interest, introducing and referring 
potential parties to each other, and arranging contacts between and 
meetings of interested parties; (b) conveying between interested 
parties expressions of interest, bids, offers, orders and confirmations 
relating to a transaction; and (c) transmitting information concerning 
products and services to potential parties in connection with the 
activities listed in (a) and (b).\112\
---------------------------------------------------------------------------

    \112\ 12 CFR 255.86(a)(1).
---------------------------------------------------------------------------

    The FDIC's second NPR proposed to define the finder activities 
discussed above as financial activities for purposes of Title II. Under 
the Board of Governors' Regulation Y, certain limitations are 
applicable to financial holding companies that engage in finder 
activities. These limitations include acting only as an intermediary 
between a buyer and a seller; and not binding any buyer or seller to 
the terms of a specific transaction or negotiating the terms of a 
specific transaction on behalf of a buyer or seller, except that (1) a 
finder may arrange for buyers to receive preferred terms from sellers 
so long as the terms are not negotiated as part of any individual 
transaction, are provided generally to customers or broad categories of 
customers, and are made available by the seller (and not by the 
company), and (2) a finder may establish rules of general applicability 
governing the use and operation of the finder service, including rules 
that govern the submission of bids and offers by buyers and sellers, 
the circumstances under which the finder service will match bids and 
offers, and the manner in which buyers and sellers may bind themselves 
to the terms of a specific transaction. The definition of ``financial 
activities'' in the FDIC's second NPR included these conditions in the 
description of finder activities.
    Additionally, The Board of Governors' Regulation Y prohibits 
financial holding companies engaged in finder activities from (a) 
taking title to or acquiring or holding an ownership interest in any 
product or service offered or sold through the finder service; (b) 
providing distribution services for physical products or services 
offered or sold through the finder service; (c) owning or operating any 
real or personal property that is used for the purpose of 
manufacturing, storing, transporting, or assembling physical products 
offered or sold by third parties; (d) owning or operating any real or 
personal property that serves as a physical location for the physical 
purchase, sale or distribution of products or services offered or sold 
by third parties; or (e) engaging in any activity that would require 
the company to register or obtain a license as a real estate agent or 
broker under applicable law. Each of these conditions, with the 
exception of the prohibition on engaging in any activity that would 
require the company to register or obtain a license as a real estate 
agent or broker, was included in the FDIC's second NPR.
    The prohibition on engaging in any activity that would require the 
company to register or obtain a license as a real estate agent or 
broker prevents bank holding companies from engaging in any real estate 
brokerage or property management activities. In the FDIC's second NPR, 
the FDIC proposed removing this condition from the description of 
finder activities in the definition of ``financial activities.''
    The FDIC received no comments addressing the proposed inclusion of 
these conditions in the FDIC's second NPR. After reviewing the 
conditions contained in the definition of finder activities in the 
FDIC's second NPR and consulting with the Board of Governors, the FDIC 
has determined that the prohibition on engaging in any activity that 
would require the company to register or obtain a license as a real 
estate agent or broker is definitional. Consequently, this condition 
has been restored in the final rule. While neither real estate 
brokerage nor real estate management are financial activities under 
section 4(k), a company may engage in such activities and still be 
predominantly engaged in the financial activity of acting as a finder. 
Under the final rule, only revenues associated with this latter 
activity will be considered financial for purposes of determining 
whether a firm is predominantly engaged in financial activities.
     Other Activities
    As described above, section 4(k) of the BHC Act authorizes the 
Board of Governors, in consultation with the Secretary, to determine in 
the future that additional activities are ``financial in nature or 
incidental thereto.'' \113\ One comment that was submitted in response 
to the Board of Governors' second NPR suggested that the universe of 
financial activities that should be included when calculating either 
the revenue or assets test \114\ should be frozen as of the date on 
which the Act was passed and should not include additional activities 
that the Board of Governors, in consultation with the Secretary, 
determines in the future to be ``financial in nature or incidental 
thereto.'' This comment, which specifically addressed the Board of 
Governor's rulemakings under Title I, was also submitted to the FDIC in 
response to the FDIC's second NPR.
---------------------------------------------------------------------------

    \113\ See 12 U.S.C. 1834(k)(1)-(k)(3).
    \114\ 12 U.S.C. 5831(a)(6) provides that a company is 
predominantly engaged in financial activities for purposes of Title 
I if 85 percent or more of the company assets are related to, or 
revenues are derived from, activities that are financial in nature 
for purposes of section 4(k) of the BHC Act.
---------------------------------------------------------------------------

    The activities listed in the final rule's definition of ``financial 
activities'' represent all of the activities that the Board of 
Governors has determined, to date, are financial in nature or 
incidental thereto for purposes of section 4(k), but without certain of 
the conditions that are imposed to ensure a bank holding company 
conducting the activity does so in a safe and sound manner or in 
compliance with other applicable law. In the interests of providing 
certainty, the FDIC believes that this comprehensive list is 
appropriate for determining if a company is predominantly engaged in 
financial activities for purposes of Title II, However, the FDIC also 
acknowledges that the definition of activities that are financial in 
nature or incidental thereto under section 4(k) is not static. If the 
Board of Governors determines in the future that other

[[Page 34728]]

activities are financial in nature or incidental thereto for purposes 
of section 4(k), the FDIC can amend the definition of ``financial 
activities'' for purposes of Title II at that time. Accordingly, the 
provision incorporating section 4(k)(1) in the proposed definition of 
``financial activities'' has been removed from the final rule.
3. Equity Investments in Unconsolidated Entities
    The FDIC's first NPR included two rules of construction governing 
the application of the revenue tests to revenues attributable to a 
company's minority equity investments in unconsolidated entities. Under 
the first rule of construction, the FDIC proposed to attribute to a 
company all revenues derived from the company's equity investment in 
any unconsolidated company that itself is predominantly engaged in 
financial activities.\115\ This rule of construction would have 
required companies to determine whether 85 percent or more of an 
investee company's revenues were attributable to financial activities 
for purposes of determining whether to treat revenues related to 
unconsolidated minority investments as financial.
---------------------------------------------------------------------------

    \115\ See Sec.  308.8(d)(1) of the FDIC's first NPR.
---------------------------------------------------------------------------

    Under the second rule of construction, the FDIC proposed to permit 
(but not require) a company to treat as nonfinancial the revenues 
attributable to a limited amount of de minimis equity investments in 
unconsolidated companies without having to separately determine whether 
the investee company is itself predominantly engaged in financial 
activities.\116\
---------------------------------------------------------------------------

    \116\ See Sec.  308.8(d)(2) of the FDIC's first NPR.
---------------------------------------------------------------------------

First Rule of Construction: Unconsolidated Investments
    Some of the comments received by the FDIC expressed the view that 
requiring a company to determine whether unconsolidated investee 
companies are themselves predominantly engaged in financial activities 
would be unduly burdensome. One such commenter noted that situations 
may exist where an investing company will not have sufficient access to 
information about the business operations of an investee company to 
perform the required analysis. Another commenter recommended that the 
FDIC revise the first rule of construction to provide that a company 
may treat revenues derived from an unconsolidated investment as not 
financial for purposes of Title II if the company is unable to obtain 
the relevant information about the source of revenues of the investee 
company, including from publicly available information, to perform the 
required analysis. One commenter requested that the FDIC accept 
determinations made by investing companies, provided such 
determinations are based on good-faith efforts. Another commenter 
expressed concern that the ``look-through'' feature of the first rule 
of construction would complicate the calculation of the 85-percent 
total consolidated revenue test for funds and other companies that 
generally make non-controlling unconsolidated investments. This 
commenter requested that the FDIC accept determinations made by 
investors so long as such determinations are based on good-faith 
efforts.
    One commenter expressed concern that any securitization trust or 
special purpose fund that pools and services (or arranges for the 
servicing of) any number of assets classes could be considered 
``predominantly engaged'' for purposes of the FDIC's first NPR. The 
commenter argued that such a rule would deter investment in asset-
backed securities and securities issued by investment funds that are 
not debt in form, requesting that a third rule of construction be added 
that would permit a company to treat revenues it derives from any 
equity investments in an unconsolidated investee company as not derived 
from financial activities if such investee company is a securitization 
trust or a special purpose fund that directly or indirectly holds and 
services (or arranges for the servicing of) pools of specified asset 
classes.
    The first rule of construction contained in the FDIC's first NPR 
mirrored the first rule of construction proposed in the Board of 
Governors' first NPR. The Board of Governors received comments 
asserting that a company's minority equity investments in an 
unconsolidated company should not be included in a company's financial 
revenues or assets when determining whether such company is 
predominantly engaged in financial activities for purposes of Title I 
unless the investment was made in connection with a merchant banking 
investment as defined in section 4(k) or was made in a subsidiary of 
the company. Some commenters also viewed as burdensome the requirement 
to determine whether an investee company is itself predominantly 
engaged in financial activities. In light of those comments, the Board 
of Governors eliminated the requirement that a company determine 
whether an unconsolidated company in which it has made an investment is 
predominantly engaged in financial activities in the Board of 
Governors' final rule. In its place, the Board of Governors' final rule 
provided that an investment in an unconsolidated company will be 
presumed to be made in the course of conducting a financial activity 
set forth in section 4(k). The Board of Governors' final rule also 
permits a company to rebut the presumption that an investment in a 
particular unconsolidated company is related to a financial activity by 
providing evidence to (i) the Financial Stability Oversight Council 
(``Council''), with respect to the definition of a nonbank financial 
company for purposes of Title I of the Act (other than with respect to 
the definition of a significant nonbank financial company), or (ii) the 
Board of Governors, with respect to the definition of a significant 
nonbank financial company, that the investment is not a merchant 
banking investment, an investment for others, an investment in a 
company engaged in activities that are financial in nature, or is not 
otherwise related to a financial activity. The preamble to the Board of 
Governors' final rule clarified that such evidence would be considered 
on a case-by-case basis to determine whether the revenues derived from, 
or the assets related to, a company's investment in an unconsolidated 
company should be considered to be financial revenues or assets of the 
company.
    After reviewing the comments received and considering the Board of 
Governors' final rule, the FDIC also has eliminated the first rule of 
construction as proposed in the FDIC's first NPR. For purposes of the 
final rule, a company's revenues derived from an investment in an 
unconsolidated entity will be treated as revenues derived from a 
financial activity unless the recommending agencies or the Secretary, 
as applicable, determine otherwise based on information to the contrary 
that they have at the time that the recommendation and determination 
are made under section 203 of the Act. The FDIC believes that most 
companies that derive a significant portion of revenue from investments 
in unconsolidated companies (such as hedge funds, private equity funds, 
or mutual funds) generally hold those investments for purposes of 
resale, make those investments in connection with the activity of 
investing for others, or invest in companies engaged in financial 
activities. Such investments will typically be made in the course of 
conducting one of the financial activities listed in section 4(k) 
(e.g., (i) bona fide merchant banking

[[Page 34729]]

activity under section 4(k)(4)(H); (ii) an investment made for others 
as defined in section 4(k)(4)(A); or (iii) an investment in a company 
engaged in activities that are financial in nature). The FDIC also 
believes that this approach will reduce burden on companies by allowing 
them to determine whether they may be predominantly engaged in 
financial activities for purposes of Title II without having to 
determine whether an unconsolidated company in which it has invested is 
itself predominantly engaged in financial activities.
    Unlike the rebuttable presumption contained within the Board of 
Governors' final rule, this final rule generally treats revenues 
derived from investments in unconsolidated entities as revenues derived 
from financial activities by definition. The FDIC believes that this 
approach is necessary given the nature of the orderly liquidation 
authority including, specifically, the need for expeditious action 
under Title II. Title II is intended to resolve in an orderly, yet 
expeditious manner, companies that are in default or in danger of 
default and whose failure could have serious adverse effects on the 
U.S. financial system. The determinations to be made by the 
recommending agencies and the Secretary necessarily must be made 
quickly if those serious adverse effects are to be avoided. It is 
important to note, in this regard, that Title II provides for expedited 
judicial review of any determination that a company is a ``financial 
company.'' For companies other than bank holding companies and nonbank 
financial companies supervised by the Board of Governors this review 
would likely include an examination of whether the company meets one of 
the revenue tests and is appropriately considered a financial company.
    The FDIC believes that this approach would also address investments 
in securitization trusts and special purpose funds that directly or 
indirectly hold and service pools of specified asset classes because 
such investments would likely qualify as one or more of the activities 
listed in the definition of ``financial activities'' in the final rule. 
For this reason, the FDIC did not adopt an additional rule of 
construction to exempt such investments.
    The final rule also clarifies that the FDIC's treatment of revenues 
derived from a company's investment in an unconsolidated company is not 
dependent on whether the investment would constitute a ``minority'' 
investment under applicable accounting standards. This approach is 
intended to address circumstances in which an investor holds more than 
a majority of an investee company's voting shares but has granted 
substantive participating rights or similar rights to minority 
shareholders and, therefore, does not have a controlling financial 
interest under applicable accounting standards.
Second Rule of Construction: De Minimis Investments
    As noted above, the FDIC's first NPR contained a second rule of 
construction that would permit, but not require, a company to treat as 
nonfinancial the revenues attributable to investments in unconsolidated 
companies representing less than five percent of any class of 
outstanding voting shares, and less than 25 percent of the total 
equity, of the unconsolidated company without having to separately 
determine whether those companies are themselves predominantly engaged 
in financial activities.\117\ This rule of construction was subject to 
several conditions designed to limit the potential for these de minimis 
investments to substantially alter the financial character of the 
activities of a company.\118\
---------------------------------------------------------------------------

    \117\ See Sec.  308.8(d)(2) of the FDIC's first NPR.
    \118\ Specifically, this rule of construction provided that a 
company may treat revenues derived from an equity investment by the 
company in an investee company as revenues not derived from 
activities that are financial in nature or incidental thereto 
(regardless of the type of activities conducted by the other 
company), if (i) the company owns less than five percent of any 
class of outstanding voting shares, and less than 25 percent of the 
total equity, of the investee company; (ii) the financial statements 
of the investee company are not consolidated with those of the 
company under applicable accounting standards; (iii) the company's 
investment in the investee company is not held in connection with 
the conduct of any financial activity (such as, for example, 
investment advisory activities or merchant banking investment 
activities) by the company or any of its subsidiaries; (iv) the 
investee company is not a bank, bank holding company, broker-dealer, 
insurance company, or other regulated financial institution; and (v) 
the aggregate amount of revenues treated as nonfinancial under the 
rule of construction in any year does not exceed five percent of the 
company's total consolidated financial revenues.
---------------------------------------------------------------------------

    In light of the FDIC's modifications to the first rule of 
construction, the second rule of construction is no longer necessary 
and the FDIC has removed the second rule of construction from the final 
rule.
4. Appropriate Accounting Standards
    ``Applicable accounting standards'' was defined in the FDIC's first 
NPR to mean the accounting standards that a company uses in the 
ordinary course of business in preparing its consolidated financial 
statements, provided those standards are: (i) U.S. generally accepted 
accounting principles (``GAAP''); (ii) International Financial 
Reporting Standards (``IFRS''); or (iii) such other accounting 
standards that the FDIC determines to be appropriate.\119\ In 
determining whether an accounting standard other than GAAP or IFRS is 
appropriate, various factors will be considered, including whether the 
accounting standard is used by the company in the ordinary course of 
its business in preparing its consolidated financial statements. 
Reliance on an accounting standard that the company uses in the 
ordinary course of business reduces the potential for companies to 
change the outcome of the 85 percent revenue test by changing the 
accounting standards used for these purposes.
---------------------------------------------------------------------------

    \119\ See Sec.  380.8(b)(3) of the FDIC's first NPR.
---------------------------------------------------------------------------

    One commenter requested that the FDIC provide in the final rule 
that, in all cases, the ``applicable accounting standards'' will be the 
standards ``utilized by the company in the ordinary course of 
business'' unless the accounting standards in question have been 
designated as inappropriate by the FDIC. One commenter noted that 
allowing companies to use their consolidated year-end financial 
statements prepared in accordance with GAAP, or its functional 
equivalent, as the basis for determining their total consolidated 
revenue, allows the FDIC to compare such amounts across a broad 
spectrum of companies. This commenter also noted that this approach 
would facilitate the ability of companies to determine whether they are 
financial companies for the purposes of the Act. The FDIC agrees that 
this methodology is likely to provide a transparent, practical, and 
comparable basis for determining such amounts across companies and, 
thus, should facilitate the ability of a company, the recommending 
agencies, and the Secretary to determine whether a company is a 
financial company for purposes of Title II. Moreover, allowing 
companies to use the year-end consolidated financial statements that 
they already prepare for financial reporting or other purposes should 
help reduce potential burden.
    A number of commenters noted that insurance companies are not 
required by applicable insurance law or regulation to prepare financial 
statements in accordance with GAAP. Two such commenters suggested that 
certain insurance companies, including mutual and fraternal insurance 
companies, prepare their financial statements in accordance with 
Statutory Accounting Principles (``SAP''). One commenter noted that the 
rules governing SAP are developed by the National Association of 
Insurance

[[Page 34730]]

Commissioners, which promulgates comprehensive accounting guidelines 
that are then implemented under state law and state insurance 
regulations. This commenter also suggested that SAP-based accounting is 
generally more conservative than GAAP-based accounting. These 
commenters recommended that the final rule include, with respect to 
insurance companies, SAP under the definition of ``applicable 
accounting standards.''
    To avoid unintended consequences that could arise as a result of 
differences between SAP and GAAP with respect to consolidation, section 
380.8(b) in the final rule does not expressly list SAP within the 
definition of ``applicable accounting standards.'' Nonetheless, the 
FDIC believes that the use of SAP as an accounting standard may be 
appropriate in certain circumstances and that if such a circumstance 
occurs, it can be appropriately addressed under section 
380.8(b)(1)(iii) of the final rule.\120\ However, the final rule 
removes the reference to the FDIC in that provision. The reason for 
that change is that, consistent with section 203 of the Act, it is not 
solely the FDIC that will determine whether the use of any other 
standard is appropriate. Rather, it is the recommending agencies, for 
purposes of their evaluations, and the Secretary, for purposes of the 
Secretary's determination who will determine whether the use of any 
other standard is appropriate.
---------------------------------------------------------------------------

    \120\ The ordering of the definitions listed in Sec.  380.8(b) 
has been modified from the FDIC's first NPR. The final rule lists 
the definitions in alphabetical order.
---------------------------------------------------------------------------

5. Timing of Determination
    The final rule, like the FDIC's first NPR, provides flexibility, in 
appropriate circumstances, to consider whether a company meets the 
statutory definition of predominantly engaged in activities that are 
financial in nature or incidental thereto based on the full range of 
information that may be available concerning the company's activities 
(including information obtained from other Federal or state financial 
supervisors or agencies) at any time rather than only as reflected in 
the company's year-end consolidated financial statements.
    For example, the FDIC notes that the mix of a company's revenues, 
as well as the risks the company could pose to the U.S. financial 
system, may change significantly and quickly as a result of various 
types of transactions or actions, such as a merger, consolidation, 
acquisition, establishment of a new business line, or the initiation of 
a new activity. Moreover, these transactions and actions may occur at 
any time during a company's fiscal year and, accordingly, the effects 
of the transactions or actions may not be reflected in the year-end 
consolidated financial statements of the company for several months.
    The FDIC believes that the final rule appropriately takes into 
account the effect of changes in the nature or mix of a company's 
activities as a result of such transactions or actions where such 
changes may affect the determination of the Secretary as to whether the 
company is a financial company for purposes of the orderly liquidation 
authority under Title II.

III. Administrative Law Matters

A. Paperwork Reduction Act

    In accordance with the requirements of the Paperwork Reduction Act 
of 1995, 44 U.S.C. 3501 et seq., the FDIC may not conduct or sponsor, 
and the respondent is not required to respond to, an information 
collection unless it displays a currently valid Office of Management 
and Budget (``OMB'') control number. This final rule does not involve 
any new collections of information pursuant to the Paperwork Reduction 
Act. Consequently, no information has been submitted to the Office of 
Management and Budget for review.

B. Regulatory Flexibility Act

    The Regulatory Flexibility Act (``RFA''), 5 U.S.C. 601 et seq., 
generally requires an agency to consider whether a final rule will have 
a significant economic impact on a substantial number of small 
entities. The agency must prepare and publish a final regulatory 
flexibility analysis with respect to the potential significant economic 
impact. Pursuant to section 605(b) of the RFA, the final regulatory 
flexibility analysis otherwise required under section 604 of the RFA is 
not required if the agency certifies that the rule will not have a 
significant economic impact on a substantial number of small entities. 
The FDIC has considered the potential impact of the final rule on small 
entities in accordance with the RFA. Pursuant to section 605 of the 
RFA, the FDIC certifies that the final rule will not have a significant 
impact on a substantial number of small entities. The final rule only 
establishes definitional criteria for calculating revenues to determine 
whether a company is ``predominantly engaged in activities that the 
Board of Governors has determined are financial in nature or incidental 
thereto'' for purposes of determining whether a company is a 
``financial company'' under Title II of the Dodd-Frank Act. Moreover, 
it does not subject any company to a Title II resolution.
    Additionally, to be eligible to be designated as a ``covered 
financial company'' and subject to the orderly liquidation provisions 
of Title II, a company must satisfy, among other criteria, the 
definition of ``financial company.'' Importantly, a ``financial 
company'' is not automatically subject to the orderly liquidation 
authority provisions of Title II. Only a financial company for which a 
systemic risk determination has been made under section 203 of the Act 
is a ``covered financial company'' subject to the orderly liquidation 
authority under Title II. Under section 203(b) of the Act, a 
determination by the Secretary that a financial company satisfies the 
criteria for designation as a ``covered financial company'' requires, 
among other things, a determination that the failure of the financial 
company and its resolution under otherwise applicable Federal or State 
law would have serious adverse effects on financial stability in the 
United States. Although asset size may not be the only factor relevant 
to that determination, it is an important consideration. Under the 
regulations of the Small Business Administration (SBA), firms within 
the ``Finance and Insurance'' sector are considered ``small'' if they 
have asset sizes that vary from $7 million or less in assets to $175 
million or less in assets.\121\ It is unlikely that a determination 
would be made that a financial company at or below these size 
thresholds is a ``covered financial company,'' given the above-
referenced criterion that must be satisfied under Section 203(b). In 
addition, as described in the Supplementary Information section of this 
preamble, the FDIC has taken steps to reduce the potential burden of 
the final rule on companies that may be affected by the final rule.
---------------------------------------------------------------------------

    \121\ See 13 CFR 121.201.
---------------------------------------------------------------------------

    One commenter expressed the view that although it is unlikely that 
companies with less than $175 million in assets would be subject to the 
orderly liquidation process under Title II, in the event that a money 
market mutual fund were determined to be a covered financial company, 
small businesses, municipal entities, and small non-profit 
organizations that invest in the fund would be face higher costs. The 
commenter asserted that the RFA requires the FDIC to perform a cost-
benefit analysis of its proposed rules because the RFA applies even in 
those instances in which a regulation does not

[[Page 34731]]

directly apply to an entity, but directly affects it.\122\
---------------------------------------------------------------------------

    \122\ The commenter cited to Aeronautical Repair Station Ass'n, 
Inc. v. FAA., 494 F.3d 161, 177 (D.C. Cir. 2007). In that case, the 
FAA regulation at issue required employees who performed certain 
functions ``directly or by contract (including by subcontract at any 
tier)'' to be subject to drug and alcohol testing. The commenter 
stated that the ``court rejected arguments that an RFA analysis was 
unnecessary because contractors of air carriers were not ``directly 
regulated'' and were not the ``targets'' of the regulation. The 
commenter asserted that the court held that contractors were 
``subject to the proposed regulation'' for purposes of RFA even 
though the regulation was ``immediately addressed'' to the air 
carriers, because the regulations applied to employees of the air 
carriers. The contractors were ``directly affected and therefore 
regulated'' within the meaning of the RFA.
---------------------------------------------------------------------------

    The question of whether the RFA requires consideration of the 
indirect application of a rule has been considered by the courts, which 
have held that the RFA only requires an analysis of how a rule affects 
small entities that would be directly subject to its requirements.\123\ 
As described above, the final rule establishes criteria for determining 
if a company is ``predominantly engaged in activities that are 
financial in nature or incidental thereto'' for purposes of Title II. 
The final rule does not impose requirements directly on any 
entity.\124\ Moreover, as noted above, it is unlikely that a company 
with less than $175 million in assets would be a ``covered financial 
company'' under Title II. As such, the FDIC believes that the final 
rule will not have a significant impact on a substantial number of 
small entities.
---------------------------------------------------------------------------

    \123\ See Mid-Tex Elec. Coop v. FERC, 773 F.2d 327 (DC Cir. 
1985) and American Trucking Ass'ns v. EPA, 175 F.3d 1027, 1044 (DC 
Cir. 1999), aff'd in part and rev'd in part on other ground, Whitman 
v. American Trucking Ass'ns, 531 I/S/475 (2001). In Mid-Tex, the 
court rejected the argument that ``RFA is intended to apply to all 
rules that affect small entities, whether the small entities are 
directly regulated or not,'' and held that the RFA requires agencies 
to consider the ``economic impact'' of a regulation on ``a 
substantial number of small entities that are subject to the 
requirements'' of the regulation. See 773 F.2d at 342 (emphasis 
added). The court further stated that ``Congress did not intend to 
require that every agency consider every indirect effect that any 
regulation might have on small business in any stratum of the 
national economy.'' See id. At 343. The court in Aeronautical Repair 
Station, the case cited by the commenter, distinguished Mid-Tex and 
its progeny from the facts in that case, in which the regulations at 
issue ``expressly require[d] that the employees of contractors and 
subcontractors be tested'' for drug and alcohol use. See 494 F.3d at 
177. For this reason, the court in Aeronautical Repair Station found 
that the rule at issue ``impose[d] responsibilities directly on the 
contractors and subcontractors and they [we]re therefore parties 
affected by and regulated by it.'' See id. (emphasis added).
    \124\ 12 U.S.C. 5383(b).
---------------------------------------------------------------------------

    The same commenter also asserted that the FDIC is required to 
perform a cost benefit analysis under Executive Order 13579. The 
Executive Order cited does not mandate that independent agencies such 
as the FDIC perform cost benefit analysis of their regulations. 
However, the FDIC takes seriously the importance of evaluating the 
burdens imposed by its rulemaking efforts. For example, the FDIC seeks 
to adopt final rules that faithfully reflect the statutory provisions 
and Congressional intent while minimizing regulatory burden. As 
described above, the FDIC considered the potential impact of the final 
rule on small entities and certified that the final rule will not have 
a significant impact on a substantial number of small entities. In 
addition, since the final rule does not involve any new collections of 
information, no PRA analysis is required.

C. Small Business Regulatory Enforcement Fairness Act

    The Office of Management and Budget has determined that the final 
rule is not a ``major rule'' within the meaning of the Small Business 
Regulatory Enforcement Fairness Act of 1996 (``SBREFA''), 5 U.S.C. 801 
et seq. As required by the SBREFA, the FDIC will file the appropriate 
reports with Congress and the General Accounting Office so that the 
final rule will be reviewed.

D. Plain Language

    Section 722 of the Gramm-Leach-Bliley Act (Pub. L. 106-102, 113 
Stat. 1338, 1471) requires the FDIC to use plain language in all 
proposed and final rules published after January 1, 2000. In light of 
this requirement, the FDIC has sought to present the final rule in a 
simple and straightforward manner.

Text of the Final Rule

List of Subjects in 12 CFR Part 380

    Holding companies, Insurance companies.

Authority and Issuance

    For the reasons set forth in the Supplementary Information, the 
Federal Deposit Insurance Corporation amends Part 380 of Chapter III of 
Title 12, Code of Federal Regulations as follows:

PART 380--ORDERLY LIQUIDATION AUTHORITY

0
1. Revise the authority citation for part 380 to read as follows:

    Authority:  12 U.S.C. 5389; 12 U.S.C. 5390(s)(3); 12 U.S.C. 
5390(b)(1)(C); 12 U.S.C. 5390(a)(7)(D); 12 U.S.C. 5381(b).


0
2. Add Sec.  380.8 to read as follows:


Sec.  380.8  Predominantly engaged in activities that are financial or 
incidental thereto.

    (a) For purposes of sections 201(a)(11) and 201(b) of the Dodd-
Frank Wall Street Reform and Consumer Protection Act \1\ (``Dodd-Frank 
Act'') and this part, a company is predominantly engaged in activities 
that the Board of Governors of the Federal Reserve System (``Board of 
Governors'') has determined are financial in nature or incidental 
thereto for purposes of section 4(k) of the Bank Holding Company Act of 
1956 (``BHC Act'') (12 U.S.C. 1843(k)), if:
---------------------------------------------------------------------------

    \1\ 12 U.S.C. 5381(a)(11) and (b).
---------------------------------------------------------------------------

    (1) At least 85 percent of the total consolidated revenues of such 
company (determined in accordance with applicable accounting standards) 
for either of its two most recently completed fiscal years were 
derived, directly or indirectly, from financial activities, or
    (2) Based upon all of the relevant facts and circumstances, the 
consolidated revenues of the company from financial activities 
constitute 85 percent or more of the total consolidated revenues of the 
company.
    (b) For purposes of paragraph (a) of this section, the following 
definitions apply:
    (1) The term ``applicable accounting standards'' means the 
accounting standards utilized by the company in the ordinary course of 
business in preparing its consolidated financial statements, provided 
that those standards are:
    (i) U.S. generally accepted accounting principles,
    (ii) International Financial Reporting Standards, or
    (iii) Such other accounting standards that are determined to be 
appropriate on a case-by-case basis.
    (2) The terms ``broker'' and ``dealer'' have the same meanings as 
in section 3 of the Securities Exchange Act of 1934 (15 U.S.C. 78c).
    (3) The term ``financial activity'' means:
    (i) Lending, exchanging, transferring, investing for others, or 
safeguarding money or securities.
    (ii) Insuring, guaranteeing, or indemnifying against loss, harm, 
damage, illness, disability, or death, or providing and issuing 
annuities, and acting as principal, agent, or broker for purposes of 
the foregoing, in any state.
    (iii) Providing financial, investment, or economic advisory 
services, including advising an investment company (as defined in 
section 3 of the Investment Company Act of 1940).

[[Page 34732]]

    (iv) Issuing or selling instruments representing interests in pools 
of assets permissible for a bank to hold directly.
    (v) Underwriting, dealing in, or making a market in securities.
    (vi) Engaging in any activity that the Board of Governors has 
determined to be so closely related to banking or managing or 
controlling banks as to be a proper incident thereto, which include--
    (A) Extending credit and servicing loans. Making, acquiring, 
brokering, or servicing loans or other extensions of credit (including 
factoring, issuing letters of credit and accepting drafts) for the 
company's account or for the account of others.
    (B) Activities related to extending credit. Any activity usual in 
connection with making, acquiring, brokering or servicing loans or 
other extensions of credit, including the following activities--
    (1) Real estate and personal property appraising. Performing 
appraisals of real estate and tangible and intangible personal 
property, including securities.
    (2) Arranging commercial real estate equity financing. Acting as 
intermediary for the financing of commercial or industrial income-
producing real estate by arranging for the transfer of the title, 
control, and risk of such a real estate project to one or more 
investors.
    (3) Check-guaranty services. Authorizing a subscribing merchant to 
accept personal checks tendered by the merchant's customers in payment 
for goods and services, and purchasing from the merchant validly 
authorized checks that are subsequently dishonored.
    (4) Collection agency services. Collecting overdue accounts 
receivable, either retail or commercial.
    (5) Credit bureau services. Maintaining information related to the 
credit history of consumers and providing the information to a credit 
grantor who is considering a borrower's application for credit or who 
has extended credit to the borrower.
    (6) Asset management, servicing, and collection activities. 
Engaging under contract with a third party in asset management, 
servicing, and collection \2\ of assets of a type that an insured 
depository institution may originate and own.
---------------------------------------------------------------------------

    \2\ Asset management services include acting as agent in the 
liquidation or sale of loans and collateral for loans, including 
real estate and other assets acquired through foreclosure or in 
satisfaction of debts previously contracted.
---------------------------------------------------------------------------

    (7) Acquiring debt in default. Acquiring debt that is in default at 
the time of acquisition.
    (8) Real estate settlement servicing. Providing real estate 
settlement services.\3\
---------------------------------------------------------------------------

    \3\ For purposes of this section, real estate settlement 
services do not include providing title insurance as principal, 
agent, or broker.
---------------------------------------------------------------------------

    (C) Leasing personal or real property. Leasing personal or real 
property or acting as agent, broker, or adviser in leasing such 
property if--
    (1) The lease is on a nonoperating basis; \4\
---------------------------------------------------------------------------

    \4\ The requirement that the lease is on a nonoperating basis 
means that the company does not, directly or indirectly, engage in 
operating, servicing, maintaining, or repairing leased property 
during the lease term. For purposes of the leasing of automobiles, 
the requirement that the lease is on a nonoperating basis means that 
the company does not, directly or indirectly: (1) Provide servicing, 
repair, or maintenance of the leased vehicle during the lease term; 
(2) purchase parts and accessories in bulk or for an individual 
vehicle after the lessee has taken delivery of the vehicle; (3) 
provide the loan of an automobile during servicing of the leased 
vehicle; (4) purchase insurance for the lessee; or (5) provide for 
the renewal of the vehicle's license merely as a service to the 
lessee where the lessee could renew the license without 
authorization from the lessor.
---------------------------------------------------------------------------

    (2) The initial term of the lease is at least 90 days; and
    (3) In the case of leases involving real property:
    (i) At the inception of the initial lease, the effect of the 
transaction will yield a return that will compensate the lessor for not 
less than the lessor's full investment in the property plus the 
estimated total cost of financing the property over the term of the 
lease from rental payments, estimated tax benefits, and the estimated 
residual value of the property at the expiration of the initial lease; 
and
    (ii) The estimated residual value of property for purposes of 
paragraph (b)(2)(vi)(C)(3)(i) of this section shall not exceed 25 
percent of the acquisition cost of the property to the lessor.
    (D) Operating nonbank depository institutions--(1) Industrial 
banking. Owning, controlling, or operating an industrial bank, Morris 
Plan bank, or industrial loan company that is not a bank for purposes 
of the BHC Act.
    (2) Operating savings associations. Owning, controlling, or 
operating a savings association.
    (E) Trust company functions. Performing functions or activities 
that may be performed by a trust company (including activities of a 
fiduciary, agency, or custodial nature), in the manner authorized by 
federal or state law that is not a bank for purposes of section 2(c) of 
the BHC Act.
    (F) Financial and investment advisory activities. Acting as 
investment or financial advisor to any person, including (without, in 
any way, limiting the foregoing):
    (1) Serving as investment adviser (as defined in section 2(a)(20) 
of the Investment Company Act of 1940, 15 U.S.C. 80a-2(a)(20)), to an 
investment company registered under that act, including sponsoring, 
organizing, and managing a closed-end investment company;
    (2) Furnishing general economic information and advice, general 
economic statistical forecasting services, and industry studies;
    (3) Providing advice in connection with mergers, acquisitions, 
divestitures, investments, joint ventures, leveraged buyouts, 
recapitalizations, capital structurings, financing transactions and 
similar transactions, and conducting financial feasibility studies; \5\
---------------------------------------------------------------------------

    \5\ Feasibility studies do not include assisting management with 
the planning or marketing for a given project or providing general 
operational or management advice.
---------------------------------------------------------------------------

    (4) Providing information, statistical forecasting, and advice with 
respect to any transaction in foreign exchange, swaps, and similar 
transactions, commodities, and any forward contract, option, future, 
option on a future, and similar instruments;
    (5) Providing educational courses, and instructional materials to 
consumers on individual financial management matters; and
    (6) Providing tax-planning and tax-preparation services to any 
person.
    (G) Agency transactional services for customer investments--(1) 
Securities brokerage. Providing securities brokerage services 
(including securities clearing and/or securities execution services on 
an exchange), whether alone or in combination with investment advisory 
services, and incidental activities (including related securities 
credit activities and custodial services).
    (2) Riskless principal transactions. Buying and selling in the 
secondary market all types of securities on the order of customers as a 
``riskless principal'' to the extent of engaging in a transaction in 
which the company, after receiving an order to buy (or sell) a security 
from a customer, purchases (or sells) the security for its own account 
to offset a contemporaneous sale to (or purchase from) the customer.
    (3) Private placement services. Acting as agent for the private 
placement of securities in accordance with the requirements of the 
Securities Act of 1933 (``1933 Act'') and the rules of the Securities 
and Exchange Commission.
    (4) Futures commission merchant. Acting as a futures commission 
merchant (``FCM'') for unaffiliated persons in the execution, 
clearance, or execution and clearance of any futures

[[Page 34733]]

contract and option on a futures contract.
    (5) Other transactional services. Providing to customers as agent 
transactional services with respect to swaps and similar transactions, 
any transaction described in paragraph (b)(2)(vi)(H) of this section, 
any transaction that is permissible for a state member bank, and any 
other transaction involving a forward contract, option, futures, option 
on a futures or similar contract (whether traded on an exchange or not) 
relating to a commodity that is traded on an exchange.
    (H) Investment transactions as principal--(1) Underwriting and 
dealing in government obligations and money market instruments. 
Underwriting and dealing in obligations of the United States, general 
obligations of states and their political subdivisions, and other 
obligations that state member banks of the Federal Reserve System may 
be authorized to underwrite and deal in under 12 U.S.C. 24 and 335, 
including banker's acceptances and certificates of deposit.
    (2) Investing and trading activities. Engaging as principal in:
    (i) Foreign exchange;
    (ii) Forward contracts, options, futures, options on futures, 
swaps, and similar contracts, whether traded on exchanges or not, based 
on any rate, price, financial asset (including gold, silver, platinum, 
palladium, copper, or any other metal), nonfinancial asset, or group of 
assets, other than a bank- ineligible security,\6\ if: a state member 
bank is authorized to invest in the asset underlying the contract; the 
contract requires cash settlement; the contract allows for assignment, 
termination, or offset prior to delivery or expiration, and the company 
makes every reasonable effort to avoid taking or making delivery of the 
asset underlying the contract, or receives and instantaneously 
transfers title to the underlying asset, by operation of contract and 
without taking or making physical delivery of the asset; or the 
contract does not allow for assignment, termination, or offset prior to 
delivery or expiration and is based on an asset for which futures 
contracts or options on futures contracts have been approved for 
trading on a U.S. contract market by the Commodity Futures Trading 
Commission, and the company makes every reasonable effort to avoid 
taking or making delivery of the asset underlying the contract, or 
receives and instantaneously transfers title to the underlying asset, 
by operation of contract and without taking or making physical delivery 
of the asset.
---------------------------------------------------------------------------

    \6\ A bank-ineligible security is any security that a state 
member bank is not permitted to underwrite or deal in under 12 
U.S.C. 24 and 335.
---------------------------------------------------------------------------

    (iii) Forward contracts, options,\7\ futures, options on futures, 
swaps, and similar contracts, whether traded on exchanges or not, based 
on an index of a rate, a price, or the value of any financial asset, 
nonfinancial asset, or group of assets, if the contract requires cash 
settlement.
---------------------------------------------------------------------------

    \7\ This reference does not include acting as a dealer in 
options based on indices of bank-ineligible securities when the 
options are traded on securities exchanges. These options are 
securities for purposes of the federal securities laws and bank-
ineligible securities for purposes of section 20 of the Glass-
Steagall Act, 12 U.S.C. 337. Similarly, this reference does not 
include acting as a dealer in any other instrument that is a bank-
ineligible security for purposes of section 20. Bank holding 
companies that deal in these instruments must do so in accordance 
with the Board of Governor's orders on dealing in bank-ineligible 
securities.
---------------------------------------------------------------------------

    (3) Buying and selling bullion, and related activities. Buying, 
selling and storing bars, rounds, bullion, and coins of gold, silver, 
platinum, palladium, copper, and any other metal for the company's own 
account and the account of others, and providing incidental services 
such as arranging for storage, safe custody, assaying, and shipment.
    (I) Management consulting and counseling activities--(1) Management 
consulting. Providing management consulting advice: \8\
---------------------------------------------------------------------------

    \8\ In performing this activity, companies are not authorized to 
perform tasks or operations or provide services to client 
institutions either on a daily or continuing basis, except as 
necessary to instruct the client institution on how to perform such 
services for itself. See also the Board of Governors' interpretation 
of bank management consulting advice (12 CFR 225.131).
---------------------------------------------------------------------------

    (i) On any matter to unaffiliated depository institutions, 
including commercial banks, savings and loan associations, savings 
banks, credit unions, industrial banks, Morris Plan banks, cooperative 
banks, industrial loan companies, trust companies, and branches or 
agencies of foreign banks;
    (ii) On any financial, economic, accounting, or audit matter to any 
other company.
    (2) Revenues derived from a company's management consulting 
activities under this paragraph (b)(3)(vi) will not be considered to be 
financial if the company:
    (i) Owns or controls, directly or indirectly, more than 5 percent 
of the voting securities of the client institution; or
    (ii) Allows a management official, as defined in 12 CFR 212.2(h), 
of the company or any of its affiliates to serve as a management 
official of the client institution, except where such interlocking 
relationship is permitted pursuant to an exemption permitted by the 
Board of Governors.
    (3) Up to 30 percent of a nonbank company's revenues related to 
management consulting services provided to customers not described in 
paragraph (b)(3)(vi)(I)(1)(i) or regarding matters not described in 
paragraph (b)(3)(vi)(I)(1)(ii) of this section will be included in the 
company's financial revenues.
    (4) Employee benefits consulting services. Providing consulting 
services to employee benefit, compensation and insurance plans, 
including designing plans, assisting in the implementation of plans, 
providing administrative services to plans, and developing employee 
communication programs for plans.
    (5) Career counseling services. Providing career counseling 
services to:
    (i) A financial organization \9\ and individuals currently employed 
by, or recently displaced from, a financial organization;
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    \9\ Financial organization refers to insured depository 
institution holding companies and their subsidiaries, other than 
nonbanking affiliates of diversified savings and loan holding 
companies that engage in activities not permissible under section 
4(c)(8) of the BHC Act (12 U.S.C. 1842(c)(8)).
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    (ii) Individuals who are seeking employment at a financial 
organization; and
    (iii) Individuals who are currently employed in or who seek 
positions in the finance, accounting, and audit departments of any 
company.
    (J) Support services--(1) Courier services. Providing courier 
services for:
    (i) Checks, commercial papers, documents, and written instruments 
(excluding currency or bearer-type negotiable instruments) that are 
exchanged among banks and financial institutions; and
    (ii) Audit and accounting media of a banking or financial nature 
and other business records and documents used in processing such 
media.\10\
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    \10\ See also the Board of Governors' interpretation on courier 
activities (12 CFR 225.129), which sets forth conditions for company 
entry into the activity.
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    (2) Printing and selling MICR-encoded items. Printing and selling 
checks and related documents, including corporate image checks, cash 
tickets, voucher checks, deposit slips, savings withdrawal packages, 
and other forms that require Magnetic Ink Character Recognition (MICR) 
encoding.
    (K) Insurance agency and underwriting--(1) Credit insurance. Acting 
as principal, agent, or broker for insurance (including home mortgage 
redemption insurance) that is:

[[Page 34734]]

    (i) Directly related to an extension of credit by the company or 
any of its subsidiaries; and
    (ii) Limited to ensuring the repayment of the outstanding balance 
due on the extension of credit \11\ in the event of the death, 
disability, or involuntary unemployment of the debtor.
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    \11\ Extension of credit includes direct loans to borrowers, 
loans purchased from other lenders, and leases of real or personal 
property so long as the leases are nonoperating and full-payout 
leases that meet the requirements of paragraph (b)(2)(vi)(C) of this 
section.
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    (2) Finance company subsidiary. Acting as agent or broker for 
insurance directly related to an extension of credit by a finance 
company \12\ that is a subsidiary of a company, if:
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    \12\ Finance company includes all non-deposit-taking financial 
institutions that engage in a significant degree of consumer lending 
(excluding lending secured by first mortgages) and all financial 
institutions specifically defined by individual states as finance 
companies and that engage in a significant degree of consumer 
lending.
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    (i) The insurance is limited to ensuring repayment of the 
outstanding balance on such extension of credit in the event of loss or 
damage to any property used as collateral for the extension of credit; 
and
    (ii) The extension of credit is not more than $10,000, or $25,000 
if it is to finance the purchase of a residential manufactured home 
\13\ and the credit is secured by the home; and
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    \13\ These limitations increase at the end of each calendar 
year, beginning with 1982, by the percentage increase in the 
Consumer Price Index for Urban Wage Earners and Clerical Workers 
published by the Bureau of Labor Statistics.
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    (iii) The applicant commits to notify borrowers in writing that: 
they are not required to purchase such insurance from the applicant; 
such insurance does not insure any interest of the borrower in the 
collateral; and the applicant will accept more comprehensive property 
insurance in place of such single-interest insurance.
    (3) Insurance in small towns. Engaging in any insurance agency 
activity in a place where the company or a subsidiary has a lending 
office and that:
    (i) Has a population not exceeding 5,000 (as shown in the preceding 
decennial census); or
    (ii) Has inadequate insurance agency facilities, as determined by 
the Board of Governors, after notice and opportunity for hearing.
    (4) Insurance-agency activities conducted on May 1, 1982. Engaging 
in any specific insurance-agency activity \14\ if the company, or 
subsidiary conducting the specific activity, conducted such activity on 
May 1, 1982, or received approval from the Board of Governors to 
conduct such activity on or before May 1, 1982.\15\ Revenues derived 
from a company's specific insurance agency activity under this clause 
will be considered financial only if the company:
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    \14\ Nothing contained in this provision precludes a subsidiary 
that is authorized to engage in a specific insurance-agency activity 
under this clause from continuing to engage in the particular 
activity after merger with an affiliate, if the merger is for 
legitimate business purposes.
    \15\ For the purposes of this paragraph, activities engaged in 
on May 1, 1982, include activities carried on subsequently as the 
result of an application to engage in such activities pending before 
the Board of Governors on May 1, 1982, and approved subsequently by 
the Board of Governors or as the result of the acquisition by such 
company pursuant to a binding written contract entered into on or 
before May 1, 1982, of another company engaged in such activities at 
the time of the acquisition.
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    (i) Engages in such specific insurance agency activity only at 
locations: in the state in which the company has its principal place of 
business (as defined in 12 U.S.C. 1842(d)); in any state or states 
immediately adjacent to such state; and in any state in which the 
specific insurance-agency activity was conducted (or was approved to be 
conducted) by such company or subsidiary thereof or by any other 
subsidiary of such company on May 1, 1982; and
    (ii) Provides other insurance coverages that may become available 
after May 1, 1982, so long as those coverages insure against the types 
of risks as (or are otherwise functionally equivalent to) coverages 
sold or approved to be sold on May 1, 1982, by the company or 
subsidiary.
    (5) Supervision of retail insurance agents. Supervising on behalf 
of insurance underwriters the activities of retail insurance agents who 
sell:
    (i) Fidelity insurance and property and casualty insurance on the 
real and personal property used in the operations of the company or its 
subsidiaries; and
    (ii) Group insurance that protects the employees of the company or 
its subsidiaries.
    (6) Small companies. Engaging in any insurance-agency activity if 
the company has total consolidated assets of $50 million or less. 
Revenues derived from a company's insurance-agency activities under 
this paragraph will be considered financial only if the company does 
not engage in the sale of life insurance or annuities except as 
provided in paragraphs (b)(3)(vi)(K)(1) and (3) of this section, and 
does not continue to engage in insurance-agency activities pursuant to 
this provision more than 90 days after the end of the quarterly 
reporting period in which total assets of the company and its 
subsidiaries exceed $50 million.
    (7) Insurance-agency activities conducted before 1971. Engaging in 
any insurance-agency activity performed at any location in the United 
States directly or indirectly by a company that was engaged in 
insurance-agency activities prior to January 1, 1971, as a consequence 
of approval by the Board of Governors prior to January 1, 1971.
    (L) Community development activities --(1) Financing and investment 
activities. Making equity and debt investments in corporations or 
projects designed primarily to promote community welfare, such as the 
economic rehabilitation and development of low-income areas by 
providing housing, services, or jobs for residents.
    (2) Advisory activities. Providing advisory and related services 
for programs designed primarily to promote community welfare.
    (M) Money orders, savings bonds, and traveler's checks. The 
issuance and sale at retail of money orders and similar consumer-type 
payment instruments; the sale of U.S. savings bonds; and the issuance 
and sale of traveler's checks.
    (N) Data processing.
    (1) Providing data processing, data storage and data transmission 
services, facilities (including data processing, data storage and data 
transmission hardware, software, documentation, or operating 
personnel), databases, advice, and access to such services, facilities, 
or databases by any technological means, if the data to be processed, 
stored or furnished are financial, banking or economic.
    (2) Up to 30 percent of a nonbank company's revenues related to 
providing general purpose hardware in connection with providing data 
processing products or services described in (b)(2)(vi)(N)(1) of this 
section will be included in the company's financial revenues.
    (O) Administrative services. Providing administrative and other 
services to mutual funds.
    (P) Securities exchange. Owning shares of a securities exchange.
    (Q) Certification authority. Acting as a certification authority 
for digital signatures and authenticating the identity of persons 
conducting financial and nonfinancial transactions.
    (R) Employment histories. Providing employment histories to third 
parties for use in making credit decisions and to depository 
institutions and their affiliates for use in the ordinary course of 
business.
    (S) Check cashing and wire transmission. Check cashing and wire 
transmission services.

[[Page 34735]]

    (T) Services offered in connection with banking services. In 
connection with offering banking services, providing notary public 
services, selling postage stamps and postage-paid envelopes, providing 
vehicle registration services, and selling public transportation 
tickets and tokens.
    (U) Real estate title abstracting.
    (vii) Engaging, in the United States, in any activity that a bank 
holding company may engage in outside of the United States; and the 
Board has determined, under regulations prescribed or interpretations 
issued pursuant to section 4(c)(13) of the BHC Act of 1956 (12 U.S.C. 
1843(c)(13)) to be usual in connection with the transaction of banking 
or other financial operations abroad. Those activities include--
    (A) Providing management consulting services, including to any 
person with respect to nonfinancial matters, so long as the management 
consulting services are advisory and do not allow the company to 
control the person to which the services are provided.
    (B) Operating a travel agency in connection with financial 
services.
    (C) Organizing, sponsoring, and managing a mutual fund.
    (D) Commercial banking and other banking activities.
    (viii) (A) Acting as a finder in bringing together one or more 
buyers and sellers of any product or service for transactions that the 
parties themselves negotiate and consummate, including providing any or 
all of the following services through any means--
    (1) Identifying potential parties, making inquiries as to interest, 
introducing, and referring potential parties to each other, and 
arranging contacts between and meetings of interested parties;
    (2) Conveying between interested parties expressions of interest, 
bids, offers, orders and confirmations relating to a transaction; and
    (3) Transmitting information conveying products and services to 
potential parties in connection with the activities described 
paragraphs (b)(3)(viii)(A)(1) and (2) of this section.
    (B) The following are examples of finder services when done in 
accordance with paragraphs (b)(3)(viii)(C)-(D) of this section. These 
examples are not exclusive.
    (1) Hosting an electronic marketplace on the company's Internet Web 
site by providing hypertext or similar links to the Web sites of third 
party buyers or sellers.
    (2) Hosting on the company's servers the Internet Web site of--
    (i) A buyer (or seller) that provides information concerning the 
buyer (or seller) and the products or services it seeks to buy (or 
sell) and allows sellers (or buyers) to submit expressions of interest, 
bids, offers, orders and confirmations relating to such products or 
services; or
    (ii) A government or government agency that provides the 
information concerning the services or benefits made available by 
government or government agency, assists persons in completing 
applications to receive such services or benefits from the government 
or agency, and allows persons to transmit their applications for 
services or benefits to the government or agency.
    (3) Operating an Internet Web site that allows multiple buyers and 
sellers to exchange information concerning the products and services 
that they are willing to purchase or sell, locate potential 
counterparties for transactions, aggregate orders for goods or services 
with those made by other parties, and enter into transactions between 
themselves.
    (4) Operating a telephone call center that provides permissible 
finder services.
    (C) To be a finder service for purposes of this section, the 
company providing the service must comply with the following 
limitations.
    (1) A company providing the service may act only as an intermediary 
between a buyer and a seller.
    (2) A company providing the service may not bind any buyer or 
seller to the terms of a specific transaction or negotiate the terms of 
a specific transaction on behalf of a buyer or seller, except that the 
company may--
    (i) Arrange for buyers to receive preferred terms from sellers so 
long as the terms are not negotiated as part of any individual 
transaction, are provided generally to customers or broad categories of 
customers, and are made available by the seller (and not by the 
company); and
    (ii) Establish rules of general applicability governing the use and 
operation of the finder service, including rules that govern the 
submission of bids and offers by buyers and sellers that use the finder 
service and the circumstances under which the finder service will match 
bids and offers submitted by buyers and sellers, and govern the manner 
in which buyers and sellers may bind themselves to the terms of a 
specific transaction.
    (3) Services provided by a company will not be considered finder 
services if the company providing the service--
    (i) Takes title to or acquires or holds an ownership interest in 
any product or service offered or sold through the finder service;
    (ii) Provides distribution services for physical products or 
services offered or sold through the finder service;
    (iii) Owns or operates any real or personal property that is used 
for the purpose of manufacturing, storing, transporting, or assembling 
physical products offered or sold by third parties; or
    (iv) Owns or operates any real or personal property that serves as 
a physical location for the physical purchase, sale or distribution of 
products or services offered or sold by third parties.
    (D) Services provided by a company will not be considered finder 
services if the company providing such services engages in any activity 
that would require the company to register or obtain a license as a 
real estate agent or broker under applicable law.
    (E) To be a finder service for purposes of this section, a company 
providing the service must distinguish the products and services 
offered by the company from those offered by a third party through the 
finder service.
    (ix) Directly, or indirectly acquiring or controlling, whether as 
principal, on behalf of one or more entities, or otherwise, shares, 
assets, or ownership interests (including debt or equity securities, 
partnership interests, trust certificates, or other instruments 
representing ownership) of a company or other entity, whether or not 
constituting control of such company or entity, engaged in any activity 
not financial in nature as defined in this section if:
    (A) Such shares, assets, or ownership interests are acquired and 
held as part of a bona fide underwriting or merchant or investment 
banking activity, including investment activities engaged in for the 
purpose of appreciation and ultimate resale or disposition of the 
investment;
    (B) Such shares, assets, or ownership interests are held for a 
period of time to enable the sale or disposition thereof on a 
reasonable basis consistent with the financial viability of the 
activities described in paragraph (b)(3)(ix)(A) of this section; and
    (C) During the period such shares, assets, or ownership interests 
are held, the company does not routinely manage or operate such company 
or entity except as may be necessary or required to obtain a reasonable 
return on investment upon resale or disposition.
    (x) Directly or indirectly acquiring or controlling, whether as 
principal, on behalf of one or more entities, or otherwise, shares, 
assets, or ownership interests (including debt or equity securities, 
partnership interests, trust

[[Page 34736]]

certificates or other instruments representing ownership) of a company 
or other entity, whether or not constituting control of such company or 
entity engaged in any activity not financial in nature as defined in 
this section if--
    (A) Such shares, assets, or ownership interests are acquired and 
held by an insurance company that is predominantly engaged in 
underwriting life, accident and health, or property and casualty 
insurance (other than credit-related insurance) or providing and 
issuing annuities;
    (B) Such shares, assets, or ownership interests represent an 
investment made in the ordinary course of business of such insurance 
company in accordance with relevant State law governing such 
investments; and
    (C) During the period such shares, assets, or ownership interests 
are held, the company does not routinely manage or operate such company 
except as may be necessary or required to obtain a reasonable return on 
investment.
    (xi) Lending, exchanging, transferring, investing for others, or 
safeguarding financial assets other than money or securities.
    (xii) Providing any device or other instrumentality for 
transferring money or other financial assets.
    (xiii) Arranging, effecting, or facilitating financial transactions 
for the account of third parties.
    (xiv) Ownership or control of one or more depository institutions.
    (4) The term ``recommending agencies'' means:
    (i) The Board of Governors and the Securities and Exchange 
Commission in consultation with the FDIC, for a company;
    (A) That is a broker or a dealer; or
    (B) Whose largest U.S. subsidiary is a broker or a dealer;
    (ii) The Board of Governors and the Director of the Federal 
Insurance Office in consultation with the FDIC, for a company that is 
an ``insurance company'', or whose largest U.S. subsidiary is an 
insurance company, as that term is defined in section 201(a)(13) of the 
Dodd-Frank Act; \16\ and
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    \16\ 12 U.S.C. 5381(a)(13).
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    (iii) The Board of Governors and the FDIC, for any other company.
    (5) The term ``total consolidated revenues'' means the total gross 
revenues of the company and all entities subject to consolidation by 
the company for a fiscal year.
    (c) Effect of other authority. Any activity described in paragraph 
(b)(2) of this section is considered financial in nature or incidental 
thereto for purposes of this section regardless of whether--
    (1) A bank holding company (including a financial holding company 
or a foreign bank) may be authorized to engage in the activity, or own 
or control shares of a company engaged in such activity, under any 
other provisions of the BHC Act or other Federal law including, but not 
limited to, section 4(a)(2), section 4(c)(5), section 4(c)(6), section 
4(c)(7), section 4(c)(9), or section 4(c)(13) of the BHC Act (12 U.S.C. 
1843(a)(2), (c)(5), (c)(6), (c)(7), (c)(9), or (c)(13)) and the Board 
of Governors' implementing regulations; or
    (2) Other provisions of Federal or state law or regulations 
prohibit, restrict, or otherwise place conditions on the conduct of the 
activity by a bank holding company (including a financial holding 
company or foreign bank) or bank holding companies generally.
    (d) Rule of construction. Revenues derived from an investment by 
the company in an entity whose financial statements are not 
consolidated with those of the company will be treated as revenues 
derived from financial activities, unless such treatment is not 
appropriate based on information that the recommending agencies or the 
Secretary, have at the time a written recommendation or determination 
is made under section 203 of the Dodd-Frank Act.

    Dated at Washington, DC, this 4th day of June, 2013.

    By order of the Board of Directors.

Federal Deposit Insurance Corporation.
Robert E. Feldman,
Executive Secretary.
[FR Doc. 2013-13595 Filed 6-7-13; 8:45 am]
BILLING CODE 6714-01-P