[Federal Register Volume 59, Number 211 (Wednesday, November 2, 1994)] [Rules and Regulations] [Page 0] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 94-27058] [[Page Unknown]] [Federal Register: November 2, 1994] ----------------------------------------------------------------------- FEDERAL RESERVE SYSTEM 12 CFR Parts 225 and 262 [Regulation Y; Docket No. R-0853] Applications Under Regulation Y AGENCY: Board of Governors of the Federal Reserve System. ACTION: Interim rule with request for comments. ----------------------------------------------------------------------- SUMMARY: These rules implement the streamlined notice procedure recently enacted in Section 319 of the Riegle Community Development and Regulatory Improvement Act of 1994 (``Riegle Act'') for the formation of a new bank holding company that results from a corporate reorganization of a bank by the current shareholders of the bank. These rules also implement section 321 of the Riegle Act, which amends the Bank Holding Company Act and the Bank Merger Act to authorize the Board to shorten the post-approval waiting period for bank acquisitions and mergers (during which time the United States Attorney General may review the competitive effects of a proposal approved by the Board) from 30 to 15 days with the consent of the United States Attorney General. Because the procedures prescribed by section 319 and section 321 are effective immediately, the Board has proposed the following as an interim rule that will take effect immediately. The Board is seeking comments on this interim rule, and will amend the rule as needed to address the comments received. The Board also is currently developing additional initiatives to reduce the regulatory burden associated with its application and notice procedures, and invites comment on any suggestions in furtherance of these initiatives. DATES: Interim Rule effective on November 2, 1994; comments must be received by December 5, 1994. ADDRESSES: Comments should refer to Docket No. R-0853 and may be mailed to William W. Wiles, Secretary, Board of Governors of the Federal Reserve System, 20th Street and Constitution Avenue, NW, Washington, DC 20551. Comments also may be delivered to Room B-2222 of the Eccles Building between 8:45 a.m. and 5:15 p.m. weekdays, or to the Board's Security Control Room inside the Eccles Building courtyard on 20th Street (between Constitution Avenue and C Street, NW) anytime. Comments may be inspected in room MP-500 of the Martin Building between 9 a.m. and 5 p.m. weekdays, except as provided in 12 CFR 261.8 of the Board's rules regarding availability of information. FOR FURTHER INFORMATION CONTACT: Scott G. Alvarez, Associate General Counsel (202/452-3583), or Terence F. Browne, Senior Attorney (202/452- 3707), Legal Division; or Don E. Kline, Associate Director (202/452- 3421), Nicholas A. Kalambokidis, Supervisory Financial Analyst (202/ 452-3830), or Larry R. Cunningham, Senior Financial Analyst (202/452- 2701), Division of Banking Supervision and Regulation of the Board of Governors of the Federal Reserve System. For the hearing impaired only, Telecommunications Device for the Deaf (TDD), Dorothea Thompson (202/ 452-3544). SUPPLEMENTARY INFORMATION: Section 3(a) of the Bank Holding Company Act of 1956 (12 U.S.C. 1842(a)) (``BHC Act'') requires Federal Reserve Board approval prior to consummating certain transactions resulting in the formation of a bank holding company, or in the acquisition by a bank holding company of shares or control of a bank, subject to certain exceptions. Section 319 of the Riegle Community Development and Regulatory Improvement Act of 1994 (Pub. L. No. 103-325, section 319, 108 Stat. 2160, 2224 (1994)(``Section 319'')) amends section 3 of the BHC Act to establish a notice procedure for the formation of a new bank holding company resulting from a corporate reorganization that involves substantially the same shareholders.\1\ In connection with section 319, section 320 of the Riegle Act provides an exemption from the registration requirements of the Securities Act of 1933 for securities issued by a bank holding company pursuant to such a reorganization. \1\Section 319 also amends section 5(d)(3) of the Federal Deposit Insurance Act (12 U.S.C. 1815(d)(3))--commonly referred to as the ``Oakar Amendment''--to eliminate the requirement for prior Board approval of transactions by banks owned by holding companies to merge with thrift institutions. Under the Riegle Act, Oakar transactions continue to require the prior approval of the appropriate Federal banking agency for the acquiring institution, and all Oakar transactions must comply with section 3(d) of the BHC Act, the ``Douglas Amendment.'' No amendments to the Board's regulations are needed to implement these amendments to section 5(d)(3). --------------------------------------------------------------------------- In addition, section 321 of the Riegle Act (Pub. L. No. 103-325, section 321, 108 Stat. 2160, 2226 (1994)(``Section 321'') permits the Board, with the consent of the U.S. Attorney General, to shorten the post-approval waiting period for bank acquisitions and mergers from 30 days to 15 days. The interim rule implement the provisions enacted in sections 319 and 321 of the Riegle Act. Comment is invited on all aspects of these proposals. Formation of a New Bank Holding Company Under Section 319 By its terms, the notice procedure added by section 319\2\ applies only if certain conditions are met. Specifically, the formation of a new bank holding company may be consummated 30 days after providing written notice to the appropriate Federal Reserve Bank if: (1) The shareholders of the bank will acquire, as a result of the reorganization, the shares of the newly formed bank holding company in substantially the same proportional interest as they held in the bank; (2) the bank holding company would meet, and its resulting subsidiary bank would meet, certain financial and capital standards; (3) the bank holding company would not, as a result of the reorganization, acquire other banking or nonbanking interests; and (4) during the 30-day notice period, the Reserve Bank or the Board does not object to the proposal. \2\Any application to organize a bank holding company that was filed with a Reserve Bank prior to September 23, 1994 will continue to be processed under the existing rules. Substantially the Same Shareholders Under the interim rule, the requirement that shareholders of the bank acquire ``substantially the same share interest'' in the newly formed bank holding company would be met by proposals in which the shareholder or shareholders who lawfully control at least 80 percent of the shares of the bank at the time the notice is filed would acquire, immediately after the reorganization, at least 80 percent of the shares of the holding company in substantially the same proportion. By the terms of Section 319, allowance is made for changes in shareholders' interests resulting from the exercise of dissenting shareholders' rights under State or Federal law. Accordingly, under the interim rule, a shareholder of the bank will be considered to have substantially the same proportional interest in the holding company (notwithstanding a change in the percentage of shares controlled by the shareholder) if the shareholder interest increases, on a pro rata basis, as a result of either the redemption by the bank or bank holding company of shares from dissenting shareholders, or as a result of the acquisition of shares of dissenting shareholders by the remaining shareholders. However, this notice procedure would not be available in cases in which any shareholder or group of shareholders acting in concert would, following the reorganization, own or control 10 percent or more of any class of voting shares of the bank holding company unless that shareholder or group of shareholders was authorized, after review under the Change in Bank Control Act of 1978 (12 U.S.C. 1817(j)) by the appropriate Federal banking agency for the bank, to own or control 10 percent or more of any class of voting shares of the bank. Similarly, this procedure is not available in cases in which the exercise of dissenting shareholders' rights would cause a company that is not a bank holding company (other than the company in formation) to be required to register as a bank holding company. This procedure also is not available for the formation of a bank holding company organized in mutual form. The Board seeks comment on other alternative formulations consistent with the statutory mandate that the reorganization involve substantially the same shareholders. Financial Standards Section 319 also establishes certain financial thresholds that must be satisfied to qualify for the abbreviated notice procedure. In particular, the bank to be reorganized must, at the time the notice is filed, be ``adequately capitalized,'' as this term is defined in section 38 of the Federal Deposit Insurance Act. See 12 U.S.C. 1831o. In addition, Section 319 requires that the bank holding company resulting from the reorganization meet any ``capital and other financial standards'' established by the Board. In the interim rule, the Board has established three requirements designed to identify reorganization proposals that do not raise financial or supervisory concerns that would benefit from review and explanation through an application process rather than an abbreviated notice procedure. Under the interim rule, a proposal to form a new one- bank holding company would qualify for the abbreviated notice procedures established in Section 319 if: (1) The bank has received at least a composite ``satisfactory'' rating at its most recent examination, in the event that the bank has been subject to examination; (2) the amount of debt that the bank holding company would assume at the time of the reorganization, and the proposed means of retiring this debt, would not place undue burden on the holding company or its subsidiary on a pro forma basis;\3\ and (3) at the time of the reorganization, neither the bank nor any of its officers, directors or shareholders is involved in any unresolved supervisory or enforcement matters with any appropriate Federal banking agency. \3\For a banking organization with consolidated assets, on a pro forma basis, of less than $150 million (other than a banking organization that would control a de novo bank), this requirement would be satisfied if the proposal would comply with the Board's policy statement on small one-bank holding company formations (12 CFR part 225, appendix C). --------------------------------------------------------------------------- Section 319 provides that this abbreviated notice procedure is only available to a bank holding company that would not acquire any additional banks or any nonbanking interests as part of the reorganization. Contents of Notice To begin the notice period under the interim rule, the notificant organization must submit to the appropriate Reserve Bank a written notice that includes: (1) Certification that the requirements of Section 319 and the Board's implementing rule are met by the proposal; (2) a list of the shareholders of the bank prior to the reorganization and of the holding company following the reorganization, identifying the percentage of shares held by each shareholder in the bank and proposed to be held in the new holding company; (3) a description of the resulting management of the proposed bank holding company and its subsidiary bank, including (i) biographical information regarding any officers, directors or shareholders of the resulting bank holding company who were not senior officers or directors of the bank prior to the reorganization, and (ii) a detailed history of the involvement of any officer, director or shareholder of the resulting bank holding company in any administrative or criminal proceeding; (4) pro forma financial statements for the bank holding company, and a description of the amount, source and terms of debt, if any, that the bank holding company proposes to incur, and information regarding the sources and timing for debt service and retirement; and (5) verification that notice of the proposal has been published in a newspaper of general circulation in the community in which the bank is located that provides an opportunity for interested persons to comment on the notice for a period of at least 15 calendar days. As indicated above, the interim rule requires that the applicant publish notice of the proposed reorganization and invite public comment for a period of at least 15 days. This request for public comment is consistent with the Board's practice of publishing notice of all bank holding company formations and bank expansion proposals so that the public may comment in particular on the bank's record of serving the convenience and needs of the community under the Community Reinvestment Act. Objections to Notices Within 7 calendar days of receipt of a notice containing all the information required under this interim regulation, the appropriate Reserve Bank will provide a written acknowledgement of receipt of the notice indicating that the transaction may be consummated following the 30th calendar day after the date the notice was received by the Reserve Bank unless the Reserve Bank or the Board objects to the proposal during that time. The Reserve Bank may provide written notice of approval of the reorganization at an earlier time during the notice period. If during the notice period the Board or the Reserve Bank objects to the proposal, the bank holding company must file an application under section 3 of the BHC Act.\4\ In this case, the notificant will immediately be notified of the reason for the objection, and of any additional information that may be needed to complete an application. \4\See 12 CFR 225.14. If the Reserve Bank or Board believes that issues might readily be resolved within the notice period without having to issue a formal objection, the Reserve Bank or Board may request additional information during the notice period to supplement the notice. --------------------------------------------------------------------------- Shortening of Post-Approval Waiting Period Under Section 321 Currently, section 11(b)(1) of the BHC Act (12 U.S.C. 1849(b)(1)) prohibits a bank holding company that has received approval for a transaction under section 3 of the BHC Act (other than transactions involving a probable bank failure or an emergency) from consummating the transaction prior to the thirtieth day following Board approval of the proposal in order to provide the United States Attorney General time to review the transaction for any adverse effects on competition in banking or the concentration of banking resources. The Bank Merger Act contains a similar provision applying post-approval waiting period to bank merger proposals. See 12 U.S.C. 1828(c)(6). Because Section 319 creates an exception from the application and approval process established by section 3 of the BHC Act, a notificant who has met the criteria of Section 319 and the interim rule does not appear to be subject to the post-approval waiting period established under section 11 of the BHC Act. With regard to other acquisitions under section 3 of the BHC Act or under the Bank Merger Act, section 321 of the Riegle Act (``Section 321'') authorizes the Board to shorten the post-approval waiting period in any case to a period of not less than 15 days, provided the Board has received no adverse comment from the Attorney General relating to competitive factors and the Attorney General concurs with the Board's decision to shorten the waiting period. Section 321 does not affect processing of applications involving probable bank failures or emergencies. The interim rule incorporates these revisions to the Board's Regulation Y. The Board is currently discussing with the U.S. Department of Justice the types of cases that may qualify for this shortened post-approval waiting period, and invites public comment on the types of cases where this would be appropriate. As described above, the Board has adopted the following interim rule which shall be effective immediately, and invites public comment on all aspects of this interim rule. The Board also invites suggestions on other means of reducing the regulatory burden associated with its application and notices procedures. Regulatory Flexibility Act Analysis Pursuant to section 605(b) of the Regulatory Flexibility Act (5 U.S.C. 601 et seq.), the Board does not believe that these changes will have a significant adverse economic impact on a substantial number of small entities. This interim rule will reduce the regulatory burden imposed by the Board's procedures on small bank holding companies in formation, and the Board is inviting public comment on additional ways to reduce regulatory burden. Paperwork Reduction Act Analysis No collections of information pursuant to section 3504(h) of the Paperwork Reduction Act (44 U.S.C. 3501 et seq.) are contained in these changes, and comment is invited on a proposal that would reduce the current information collection requirements imposed in connection with certain applications. List of Subjects 12 CFR Part 225 Administrative practice and procedure, Banks, banking, Federal Reserve System, Holding companies, Reporting and recordkeeping requirements, Securities. 12 CFR Part 262 Administrative practice and procedure, Banks, banking, Federal Reserve System. For the reasons set forth in the preamble, the Board amends 12 CFR parts 225 and 262 as follows: PART 225--BANK HOLDING COMPANIES AND CHANGE IN BANK CONTROL (REGULATION Y) 1. The authority citation for part 225 continues to read as follows: Authority: 12 U.S.C. 1817(j)(13), 1818, 1831i, 1831p-1, 1843(c)(8), 1844(b), 1972(1), 3106, 3108, 3907, 3909, 3310, and 3331-3351. 2. In Sec. 225.11, the introductory text is revised to read as follows: Sec. 225.11 Transactions requiring Board approval. The following transactions require an application for the Board's prior approval under section 3 of the Bank Holding Company Act except as exempted under Sec. 225.12 or as otherwise covered by Sec. 225.15 of this part: * * * * * 3. In Sec. 225.14, paragraph (i) is revised to read as follows: Sec. 225.14 Procedures for applications, notices, and hearings. * * * * * (i) Waiting period. A transaction approved under this subpart, other than a transaction approved under Sec. 225.15, shall not be consummated until 30 days after the date of approval of the application, except that a transaction may be consummated: (1) Immediately upon approval, in the event that the Board has determined under paragraph (h) of this section that the application involves a probable bank failure; (2) On or after the fifth calendar day following the date of approval, in the event that the Board has determined under paragraph (h) of this section that an emergency exists requiring expeditious action; or, (3) On or after the fifteenth calendar day following the date of approval, in the event that the Board has not received any adverse comments from the United States Attorney General relating to the competitive factors and the Attorney General has consented to such shorter waiting period. 4. A new Sec. 225.15 is added under Subpart B to read as follows: Sec. 225.15 Notice Procedure for One-Bank Holding Company Formations. (a) Transactions which qualify under this section. An acquisition by a company of control of a bank may be consummated 30 days after providing notice to the appropriate Reserve Bank in accordance with paragraph (b) of this section, provided that all of the following conditions are met: (1) The shareholder or shareholders who control at least 80 percent of the shares of the bank would control, immediately after the reorganization, at least 80 percent of the shares of the holding company in substantially the same proportion, except for changes in shareholders' interests resulting from the exercise of dissenting shareholders' rights under State or Federal law;5 \5\A shareholder of a bank in reorganization will be considered to have the same proportional interest in the holding company if the shareholder interest increases, on a pro rata basis, as a result of either the redemption of shares from dissenting shareholders by the bank or bank holding company or the acquisition of shares of dissenting shareholders by the remaining shareholders. --------------------------------------------------------------------------- (2) No shareholder or group of shareholders acting in concert would, following the reorganization, own or control 10 percent or more of any class of voting shares of the bank holding company unless that shareholder or group of shareholders was authorized, after review under the Change in Bank Control Act of 1978 (12 U.S.C. 1817(j)) by the appropriate Federal banking agency for the bank, to own or control 10 percent or more of any class of voting shares of the bank;6 \6\This procedure is not available in cases in which the exercise of dissenting shareholders' rights would cause a company that is not a bank holding company (other than the company in formation) to be required to register as a bank holding company. This procedure also is not available for the formation of a bank holding company organized in mutual form. --------------------------------------------------------------------------- (3) The bank is adequately capitalized (as defined in section 38 of the Federal Deposit Insurance Act (12 U.S.C. 1831o)); (4) The bank has received at least a composite ``satisfactory'' rating at its most recent examination, in the event that the bank has been subject to an examination; (5) At the time of the reorganization, neither the bank nor any of its officers, directors or shareholders is involved in any unresolved supervisory or enforcement matters with any appropriate Federal banking agency; (6) The company demonstrates that any debt that it would incur at the time of the reorganization, and the proposed means of retiring this debt, would not place undue burden on the holding company or its subsidiary on a pro forma basis;7 \7\For a banking organization with consolidated assets, on a pro forma basis, of less than $150 million (other than a banking organization that would control a de novo bank), this requirement would be satisfied if the proposal would comply with the Board's policy statement on small one-bank holding company formations (12 CFR Part 225, Appendix C). --------------------------------------------------------------------------- (7) The holding company would not, as a result of the reorganization, acquire control of any additional bank or engage in any activities other than those of managing and controlling banks; and (8) During this period, neither the appropriate Reserve Bank nor the Board has objected to the proposal or required the filing of an application under Sec. 225.14 of this subpart. (b) Contents of notice. A notice filed under this subsection must include: (1) Certification by the notificant's board of directors that the requirements of 12 U.S.C. 1842(a)(C) and this section are met by the proposal; (2) A list identifying the shareholders of the bank prior to the reorganization and of the holding company following the reorganization, and specifying the percentage of shares held by each shareholder in the bank and proposed to be held in the new holding company; (3) A description of the resulting management of the proposed bank holding company and its subsidiary bank, including: (i) Biographical information regarding any senior officers and directors of the resulting bank holding company who were not senior officers or directors of the bank prior to the reorganization; and, (ii) A detailed history of the involvement of any officer, director or shareholder of the resulting bank holding company in any administrative or criminal proceeding; (4) Pro forma financial statements for the holding company, and a description of the amount, source and terms of debt, if any, that the bank holding company proposes to incur, and information regarding the sources and timing for debt service and retirement; and, (5) Verification that notice of the proposal has been published in a newspaper of general circulation in the community in which the bank is located that provides an opportunity for interested persons to comment on the notice for a period of at least 15 calendar days. (c) Acknowledgement of notice. Within 7 calendar days following receipt of a notice under this section, the Reserve Bank shall provide the notificant with a written acknowledgement of receipt of the notice. This written acknowledgment shall indicate that the transaction described in the notice may be consummated on the 30th calendar day after the date of receipt of the notice if the Reserve Bank or the Board has not objected to the proposal during that time. (d) Application required upon objection. The Reserve Bank or the Board may object to a proposal during the notice period by providing the bank holding company with a written explanation of the reasons for the objection. In such case, the bank holding company may file an application for prior approval of the proposal pursuant to section 225.14 of this subpart. PART 262--RULES OF PROCEDURE 1. The authority citation for part 262 continues to read as follows: Authority: 5 U.S.C. 552, 12 U.S.C. 321, 1828(c), and 1842. 2. In Sec. 262.3, paragraph (b)(1)(i)(D) is revised to read as follows: Sec. 262.3 Applications. * * * * * (b) * * * (1)(i) * * * (D) To become a bank holding company (except as provided in 12 CFR 225.15), and * * * * * By order of the Board of Governors of the Federal Reserve System, effective October 26, 1994. William W. Wiles, Secretary of the Board. [FR Doc. 94-27058 Filed 11-01-94; 8:45 am] BILLING CODE 6210-01-P