Federal Register / Vol. 65, No. 16 / Tuesday, January 25, 2000 / Rules and Regulations 3785

§ 457.151 Forage seeding crop insurance

provisions.

The Forage Seeding Crop Insurance

Provisions for the 2001 and succeeding

crop years are as follows:

* * * * *

1. Definitions.

* * * * *

Harvest. Severance of the forage plant

from its roots. Acreage that is only

grazed will not be considered harvested.

* * * * *

5. Cancellation and Termination

Dates.

In accordance with section 2 of the

Basic Provisions, the cancellation and

termination dates are:

State and county Cancellation/termination dates

California, Nevada, New

Hampshire, New York,

Pennsylvania and

Vermont.

July 31.

Montana, Minnesota, North

Dakota, South Dakota,

Wisconsin and Wyoming.

March 15.

6. Report of Acreage.

In lieu of the provisions of section

6(a) of the Basic Provisions, a report of

all insured acreage of forage seeding

must be submitted on or before each

forage seeding acreage report date

specified in the Special Provisions.

7. Insured Crop.

* * * * *

(b) That is planted during the current

crop year, or replanted during the

calendar year following planting, to

establish a normal stand of forage;

* * * * *

8. Insurable Acreage.

In addition to the provisions of

section 9 of the Basic Provisions:

(a) In California counties Lassen,

Modoc, Mono, Shasta, Siskiyou and all

other states, any acreage of the insured

crop damaged before the final planting

date, to the extent that such acreage has

less than 75 percent of a normal stand,

must be replanted unless we agree that

it is not practical to replant; and

(b) In California, unless otherwise

specified in the Special Provisions, any

acreage of the insured crop damaged

anytime during the crop year to the

extent that such acreage has less than 75

percent of a normal stand must be

replanted unless it cannot be replanted

and reach a normal stand within the

insurance period.

* * * * *

11. Replanting Payment.

In lieu of the provisions contained in

section 13 of the Basic Provisions:

(a) A replanting payment is allowed

if:

(1) In California, unless specified

otherwise in the Special Provisions,

acreage planted to the insured crop is

damaged by an insurable cause of loss

occurring within the insurance period to

the extent that less than 75 percent of

a normal stand remains and the crop

can reach maturity before the end of the

insurance period;

(2) In Lassen, Modoc, Mono, Shasta,

Siskiyou Counties, California, and all

other states:

(i) A replanting payment is allowed

only whenever the Special Provisions

designate both fall and spring final

planting dates;

(ii) The insured fall planted acreage is

damaged by an insurable cause of loss

to the extent that less than 75 percent

of a normal stand remains;

(iii) It is practical to replant;

(iv) We give written consent to

replant; and

(v) Such acreage is replanted the

following spring by the spring planting

date.

(b) The amount of the replanting

payment will be equal to 50 percent of

the amount of indemnity determined in

accordance with section 13 unless

otherwise specified in the Special

Provisions.

* * * * *

13. Settlement of Claim.

(a) * * *

(3) Multiplying the total acres with an

established stand for the insured acreage

of each type and practice in the unit by

the amount of insurance for the

applicable type and practice;

Example

Assume you have 100 percent share

in 30 acres of type A forage in the unit,

with an amount of insurance of $100.00

per acre. At the time of loss, the

following findings are established: 10

acres had a remaining stand of 75

percent or greater. You also have 20

acres of type B forage in the unit, with

an amount of insurance of $90.00 per

acre. 10 acres had with a remaining

stand of 75 percent or greater. Your

indemnity would be calculated as

follows:

1. 30 acres × $100.00 = $3,000

amount of insurance for type A;

20 acres × $90.00 = $1,800 amount of

insurance for type B;

2. $3,000 + $1,800 = $4,800 total

amount of insurance;

3. 10 acres with 75% stand or

greater × $100 = $1,000 production to

count for type A;

10 acres with 75% stand or greater ×

$90 = $900 production to count for type

B;

4. $1,000+$900 = $1,900 total

production to count;

5. $4,800¥$1,900 = $2,900 loss;

6. $2,900×100 percent share =

$2,900 indemnity payment.

* * * * *

Signed in Washington, DC, on January 18,

2000.

Kenneth D. Ackerman,

Manager, Federal Crop Insurance

Corporation.

[FR Doc. 00–1703 Filed 1–24–00; 8:45 am]

BILLING CODE 3410–08–P

FEDERAL RESERVE SYSTEM

12 CFR Part 225

[Regulation Y; Docket No. R–1057]

Bank Holding Companies and Change

in Bank Control

AGENCY: Board of Governors of the

Federal Reserve System.

ACTION: Interim rule with request for

public comments.

SUMMARY: The Board of Governors of the

Federal Reserve System is adopting on

an interim basis effective March 11,

2000, and soliciting comment on a rule

that establishes procedures for bank

holding companies as well as foreign

banks that operate a branch, agency, or

commercial lending company in the

United States to elect to become

financial holding companies. The

interim rule includes amended

definitions of terms in existing Subpart

A that are applicable to the new

Subpart. The Board is promulgating this

rule to implement provisions of the

recently enacted Gramm-Leach-Bliley

Act that enable bank holding companies

and foreign banks that meet applicable

statutory requirements to become

financial holding companies and

thereby engage in a broader range of

financial and other activities than are

permissible for bank holding

companies.

The new Subpart sets forth the

procedures by which bank holding

companies and foreign banks may

submit to the Board an election to

become a financial holding company

and describes the period in which the

Board will act on financial holding

company elections. This Subpart also

enumerates the criteria that bank

holding companies and foreign banks

must meet in order to qualify as a

financial holding company. In addition,

the newly added sections set forth the

limitations that the Board will apply to

financial holding companies that fail to

maintain compliance with applicable

capital, management, and CRA criteria.

3786 Federal Register / Vol. 65, No. 16 / Tuesday, January 25, 2000 / Rules and Regulations

The Board has promulgated this

Subpart on an interim basis, effective on

March 11, 2000, in order to allow bank

holding companies and foreign banks

that meet applicable qualifications to

become financial holding companies as

soon as possible following the effective

date of the relevant provisions of the

Gramm-Leach-Bliley Act. The Board

will allow bank holding companies and

foreign banks to file elections in

anticipation of the effective date of the

Act and the interim rule and will review

elections as promptly as possible after

the effective date. The Board anticipates

that as soon as March 13, 2000, the

Board will begin notifying qualifying

companies that elections filed in

accordance with the interim rule are

effective. This will enable companies

that the Board determines qualify as

financial holding companies to take

advantage of the new powers granted by

the Gramm-Leach-Bliley Act as early as

March 13, 2000, which is the first

business day following the effective date

of the financial holding company

provisions of the Act.

The Board solicits comments on all

aspects of the interim rule and will

amend the rule as appropriate in

response to comments received.

DATES: This interim rule is effective on

March 11, 2000. Comments must be

received by March 27, 2000.

ADDRESSES: Comments should refer to

docket number R–1057 and should be

sent to Ms. Jennifer J. Johnson,

Secretary, Board of Governors of the

Federal Reserve System, 20th Street and

Constitution Avenue, N.W.,

Washington, D.C. 20551. Comments

addressed to Ms. Johnson also may be

delivered to the Board’s mail room

between the hours of 8:45 a.m. and 5:15

p.m. and, outside of those hours, to the

Board’s security control room. Both the

mail room and the security control room

are accessible from the Eccles Building

courtyard entrance, located on 20th

Street between Constitution Avenue and

C Street, N.W. Members of the public

may inspect comments in Room MP–

500 of the Martin Building between 9:00

a.m. and 5:00 on weekdays.

FOR FURTHER INFORMATION CONTACT:

Thomas M. Corsi, Managing Senior

Counsel (202/452–3275), Ann E.

Misback, Managing Senior Counsel

(202/452–3788), Christopher W. Clubb,

Counsel (202/452–3904), or Adrianne G.

Threatt, Attorney (202/452–3554), Legal

Division; Betsy Cross, Assistant Director

(202/452–2574) or Melissa W. Clark,

Manager, Global/International

Applications (202/452–2277), Division

of Banking Supervision and Regulation;

Board of Governors of the Federal

Reserve System, 20th Street and

Constitution Avenue, N.W.,

Washington, D.C. 20551.

SUPPLEMENTARY INFORMATION:

Background

Title I of the Gramm-Leach-Bliley Act

(Pub. L. No. 106–102, 113 Stat. 1338

(1999)) repeals sections 20 and 32 of the

Glass-Steagall Act (12 U.S.C. §§ 377 and

78, respectively) and is intended to

facilitate affiliations among banks,

securities firms, insurance firms, and

other financial companies. To further

this goal, the Gramm-Leach-Bliley Act

amends section 4 of the Bank Holding

Company Act (12 U.S.C. § 1843) (‘‘BHC

Act’’) to authorize bank holding

companies and foreign banks that

qualify as ‘‘financial holding

companies’’ to engage in securities,

insurance and other activities that are

financial in nature or incidental to a

financial activity. The activities of bank

holding companies and foreign banks

that are not financial holding companies

would continue to be limited to

activities authorized currently under the

BHC Act, such as activities that the

Board previously has determined in

regulations and orders issued under

section 4(c)(8) of the BHC Act to be

closely related to banking and

permissible for bank holding

companies.

The Gramm-Leach-Bliley Act defines

a financial holding company as a bank

holding company that meets certain

eligibility requirements. In order for a

bank holding company to become a

financial holding company and be

eligible to engage in the new activities

authorized under the Gramm-LeachBliley Act, the Act requires that all

depository institutions controlled by the

bank holding company be well

capitalized and well managed. With

regard to a foreign bank that operates a

branch or agency or owns or controls a

commercial lending company in the

United States, the Act requires the

Board to apply comparable capital and

management standards that give due

regard to the principle of national

treatment and equality of competitive

opportunity.

To become a financial holding

company, the Gramm-Leach-Bliley Act

requires a bank holding company to

submit to the Board a declaration that

the company elects to be a financial

holding company and a certification

that all of the depository institutions

controlled by the company are well

capitalized and well managed. The Act

also provides that a bank holding

company’s election to become a

financial holding company will not be

effective if the Board finds that, as of the

date the company submits its election to

the Board, not all of the insured

depository institutions controlled by the

company have achieved at least a

‘‘satisfactory’’ rating at the most recent

examination of the institution under the

Community Reinvestment Act (12

U.S.C. § 2903 et seq.) (‘‘CRA’’).

The Gramm-Leach-Bliley Act grants

the Board discretion to impose

limitations on the conduct or activities

of any financial holding company that

controls a depository institution that

does not remain both well capitalized

and well managed following the

company’s election to be a financial

holding company. The Act also requires

the Board to prohibit a financial holding

company from commencing additional

activities under new subsection 4(k) or

4(n) of the BHC Act, or from acquiring

control of companies engaged in such

activities, if any insured depository

institution controlled by the company

fails to maintain at least a satisfactory

CRA rating.

Interim Rule

In order to implement the provisions

of the Gramm-Leach-Bliley Act

governing the creation and conduct of

financial holding companies, the Board

is amending its Regulation Y by adding

a Subpart I that (a) defines the term

‘‘financial holding company’’ and

establishes procedures by which a bank

holding company may become a

financial holding company; (b)

enumerates the criteria a bank holding

company must meet in order for the

Board to determine that an election is

effective and describes the period

within which the Board will act on an

election; (c) sets forth the consequences

if any depository institution controlled

by a financial holding company fails to

remain well capitalized and well

managed, or if any insured depository

institution controlled by the financial

holding company fails to maintain at

least a satisfactory CRA rating; and (d)

specifically addresses procedures and

requirements applicable to foreign

banking organizations that seek to be

treated as financial holding companies.

The Board welcomes comment on all

parts of the interim rule.

Section 225.81 What is a Financial

Holding Company?

The Gramm-Leach-Bliley Act defines

a financial holding company as a bank

holding company that meets certain

specific requirements. In accordance

with the Act, section 225.81 provides

that, in order to qualify as a financial

holding company, all depository

institutions controlled by the company

at the time of the election must be and

Federal Register / Vol. 65, No. 16 / Tuesday, January 25, 2000 / Rules and Regulations 3787

remain well capitalized and well

managed, and the company must have

made an effective election to become a

financial holding company as described

in section 225.82. The definition of the

terms ‘‘well capitalized’’ and ‘‘well

managed’’ are described below and are

based on specific capital levels and

examination ratings.

Section 225.82 How Does a Company

Elect to Become a Financial Holding

Company?

Subsection (a) provides that a bank

holding company wishing to become a

financial holding company must file a

written declaration with the Board

stating that the bank holding company

elects to be a financial holding

company. The Board envisions that a

company’s election to become a

financial holding company could be a

short and simple document signed by an

official or representative with authority

to bind the company. Subsection (b) sets

forth the information required as part of

a declaration, which is limited to

information about the location and

capital position of each of the

depository institutions controlled by the

company, and a certification that each

such institution is both well capitalized

and well managed as of the date the

election is filed.

The Gramm-Leach-Bliley Act

provides that an election to be a

financial holding company is ineffective

if the Board finds, within a specified

period, that any insured depository

institution controlled by the bank

holding company (other than a recently

acquired institution) does not have at

least a satisfactory CRA performance

rating. Subsection (c) implements this

provision. The interim rule also

provides that an election is ineffective if

the Board finds during this period that

any depository institution controlled by

the bank holding company is not well

managed and well capitalized, as these

terms are objectively defined, as of the

date of the election.

The Board recognizes that there may

be instances in which a bank holding

company meets the statutory

requirements to be a financial holding

company but on a consolidated basis is

not well capitalized and well managed

or does not have adequate financial or

managerial resources to conduct

financial activities in a safe and sound

manner. Under these circumstances, the

Board may have significant supervisory

concerns about the ability of the

company to conduct additional

activities or make additional

acquisitions. Subsection (d) reserves the

general supervisory authority of the

Board to restrict or limit the

commencement or conduct of activities

or acquisitions of a financial holding

company if the Board finds that the

financial holding company lacks the

financial or managerial strength to

engage in new activities, make new

acquisitions, or retain ownership of

companies engaged in financial

activities.

Subsection (e) describes

circumstances under which the GrammLeach-Bliley Act allows the Board to

exclude an insured depository

institution when reviewing whether a

bank holding company meets the

applicable CRA requirement for

financial holding companies. As

provided in the Act, the Board will not

consider institutions acquired by the

company within the 12-month period

preceding an election to be a financial

holding company for purposes of the

CRA criteria provided that (i) the bank

holding company has submitted a plan

to the appropriate Federal banking

agency for the institution to take actions

necessary to achieve at least a

‘‘satisfactory’’ rating at the next CRA

examination, and (ii) the appropriate

Federal banking agency has accepted

that plan.

Subsection (f) provides that, as a

general matter, an election by a bank

holding company to become a financial

holding company will be effective on

the 31st day after the election was

received by the appropriate Federal

Reserve Bank, unless the Board has

notified the bank holding company

prior to that date that its election is

ineffective because an institution

controlled by the company fails to meet

an applicable requirement. The interim

rule provides that the Board or the

appropriate Federal Reserve Bank may

affirmatively notify a bank holding

company that an election is effective at

any time during that 30-day period.

As noted above, the Board proposes to

adopt the proposed rule on an interim

basis, effective March 11, 2000 (which

is the effective date of the financial

holding company provisions of the

Gramm-Leach-Bliley Act). This will

allow bank holding companies and

foreign banks that meet the

qualifications to be financial holding

companies to take advantage of the new

authority granted by the Gramm-LeachBliley Act as soon as possible following

the effective date of the relevant

provisions of the Act.

The Board also proposes to allow

bank holding companies and foreign

banks to file elections to become

financial holding companies

immediately in anticipation of the

effective date of the Act and interim

rule. These elections will be considered

to be made as of March 11, 2000, and

must certify compliance with all

applicable capital and management

criteria as of March 11, 2000. While the

30-day period for ineligibility decisions

does not begin on any election until the

effective date of the Act, the Board will

endeavor on March 13, 2000, which is

the first business day following the

effective date of the financial holding

company provisions of the Act, to act on

elections filed prior to February 15,

2000. The Board will act on all other

elections as soon as practicable. Prior to

the date that its election to become a

financial holding company becomes

effective, a bank holding company may

not engage in the newly authorized

activities described in new sections 4(k),

4(n), and 4(o) of the BHC Act.

Companies that are not now bank

holding companies and seek to acquire

a depository institution must still apply

to the Board to become a bank holding

company under section 3 of the BHC

Act. A company may file a bank holding

company application and a declaration

to be a financial holding company at the

same time. In that case, it is expected

that the System would act to make the

financial holding company election

effective at the time the System acts on

the underlying bank holding company

application. Consequently, the company

could become a financial holding

company without filing a separate

election after the company becomes a

bank holding company.

Section 225.83 What Are the

Consequences of Ceasing to Meet

Applicable Capital and Management

Requirements?

This section implements the

provisions of the Gramm-Leach-Bliley

Act that apply when a depository

institution controlled by an existing

financial holding company ceases to be

both well capitalized and well managed.

Subsection (a) states that the Board will

notify a company in writing if the Board

finds that not all depository institutions

controlled by the company are well

capitalized and well managed. In

recognition of the fact that a company

may know that one of its subsidiary

depository institutions has ceased to be

well capitalized or well managed before

the Board will have access to such data,

subsection (b) requires companies to

notify the Board of the institutions

involved and the areas of

noncompliance promptly upon

becoming aware of that the institution

no longer meets applicable capital or

management criteria.

Subsection (c) provides that, within

45 days (plus any additional time that

the Board may grant) after receiving a

3788 Federal Register / Vol. 65, No. 16 / Tuesday, January 25, 2000 / Rules and Regulations

1A foreign bank that operates a branch, agency or

commercial lending company subsidiary in the

United States is subject to the BHC Act as if it were

a bank holding company. In this notice, the term

‘‘branch’’ is used to include all three forms of

operation.

notice of noncompliance from the

Board, the company must execute an

agreement with the Board to comply

with applicable capital and management

requirements. An agreement required by

this subsection to correct a capital or

management deficiency must explain

the actions that the company will take

to correct each deficiency, provide a

schedule within which each action will

be taken, provide any other information

required by the Board, and be

acceptable to the Board.

Until a company has corrected the

conditions described in a notice

provided by the Board under subsection

(a), the Gramm-Leach-Bliley Act allows

the Board to impose any limitations on

the conduct or activities of the company

or any of its affiliates as the Board

deems to be appropriate and consistent

with the purposes of the BHC Act. In

particular, subsection (d) states that,

until the Board determines that all

deficiencies have been corrected, a

company may not engage in any

additional activity or acquire control or

shares of any company under section

4(k) of the BHC Act without prior

approval from the Board.

Subsection (e) provides that, if the

conditions giving rise to a notice of

noncompliance are not corrected within

180 days (or such longer period

permitted by the Board), the Board may

order the company to divest its

subsidiary depository institutions. A

company may comply with an order to

divest by instead ceasing to engage in

activities that are permissible only for

financial holding companies. The

Board’s ability to require divestitures

and impose limitations on financial

holding companies that fail to meet the

capital and management requirements is

in addition to, not in lieu of, the Board’s

ability to take supervisory actions and

enforce compliance with applicable

provisions of law under section 8 of the

BHC Act and section 8 of the Federal

Deposit Insurance Act (12 U.S.C. 1818).

Section 225.84 What Are the

Consequences of Ceasing to Maintain a

Satisfactory or Better Rating Under the

Community Reinvestment Act at All

Insured Depository Institution

Subsidiaries?

The Gramm-Leach-Bliley Act requires

the Board to prohibit a financial holding

company from commencing any

additional activity under sections 4(k)

or 4(n) of the BHC Act, or from

acquiring control of a company engaged

in activities under those sections, if any

insured depository institution

controlled by the company receives a

rating of less than ‘‘satisfactory’’ under

the CRA. Subsection (a) provides that a

financial holding company is deemed to

have received notice that these

prohibitions are in effect at the time the

appropriate Federal banking agency for

any insured depository institution

controlled by the company or the Board

notifies the institution or company that

the institution has received a rating of

‘‘needs to improve’’ or ‘‘substantial

noncompliance’’ under the CRA. The

prohibitions will continue to apply until

such time as each insured depository

institution controlled by the company

has received at least a ‘‘satisfactory’’

rating at its most recent examinations

under the CRA.

This prohibition does not prevent a

financial holding company from making

additional investments as part of

merchant banking, investment banking,

or insurance company investment

activities pursuant to section 4(k)(4)(H)

or 4(k)(4)(I) of the BHC Act, provided

that the company was lawfully engaged

in the merchant banking, investment

banking, or insurance company

investment activity prior to the time that

one of its insured depository

institutions received less than a

‘‘satisfactory’’ rating under the CRA and

the Board has not prohibited or limited

these activities.

Under the Gramm-Leach-Bliley Act,

financial holding companies that do not

comply with the CRA requirement are

not prohibited from making acquisitions

or engaging in activities that meet the

more narrow ‘‘closely related to

banking’’ standard pursuant to 4(c)(8).

Financial holding companies that seek

to engage in activities or make

acquisitions pursuant to section 4(c)(8)

of the BHC Act must, however, comply

with the requirements of that section as

well as the notice and approval

requirements of section 4(j).

Section 225.90 What are the

Requirements for a Foreign Bank to be

Treated as a Financial Holding

Company?

A foreign bank that is a bank holding

company because it owns a subsidiary

bank in the United States must comply

with the same requirements as any other

bank holding company that elects to be

a financial holding company. Most

foreign banks, however, do not own

subsidiary banks in the United States;

instead, they operate through branches

that are part of the foreign bank itself. 1

If a foreign bank operates a U.S. branch,

the foreign bank (and any company that

controls the foreign bank) is subject to

the BHC Act as if the foreign bank or

company were a bank holding company.

Such foreign banks may, like U.S. bank

holding companies, also elect to be

treated as financial holding companies

and thereby be able to engage in the new

financial activities.

Under the Gramm-Leach-Bliley Act, a

company qualifies to be a financial

holding company only if its insured

bank and thrift subsidiaries are well

capitalized and well managed. These

standards are not by their terms

applicable to the branches of a foreign

bank. Consequently, the Act provides

that ‘‘the Board shall apply comparable

capital and management standards to a

foreign bank that operates a branch

* * * in the United States giving due

regard to the principle of national

treatment and equality of competitive

opportunity.’’ The provision is

necessary because it would be

competitively harmful if a foreign bank

that conducts a banking business in the

United States in direct competition with

U.S. banks could be treated as a

financial holding company without

meeting standards comparable to those

applicable to U.S. banks. Without such

a provision, a foreign bank could make

securities and insurance acquisitions

without meeting standards comparable

to those applicable to U.S. banks,

simply because the foreign bank

conducts its U.S. banking business

through a branch rather than through a

subsidiary bank.

As described below, the Board is

proposing to adopt standards and

procedures that establish a flexible

approach to carry out the statutory

requirement for comparability of capital

and management standards while, at the

same time, assuring national treatment

and equality of competitive opportunity

for foreign banks operating in the

United States.

Section 225.90 of the new Subpart

sets forth the capital and management

standards that foreign banks that

maintain a branch, agency, or

commercial lending company in the

United States must meet in order to be

considered to be ‘‘well capitalized’’ and

‘‘well managed’’ for purposes of being

treated as financial holding companies.

Under section 225.90, in order for a

foreign bank or company to be treated

as a financial holding company, the

foreign bank must be well capitalized

and well managed in accordance with

standards comparable to those required

of U.S. banks as determined by the

Board, taking into account certain

financial factors that may affect the

analysis of capital and management.

Federal Register / Vol. 65, No. 16 / Tuesday, January 25, 2000 / Rules and Regulations 3789

Section 225.90 provides two methods

under which a foreign bank may be

considered well capitalized. The first

method is applicable to foreign banks

whose home country supervisors have

adopted risk-based capital standards

consistent with the Capital Accord of

the Basel Committee on Banking

Supervision (Basel Accord). Under this

method, the foreign bank’s total and

Tier 1 risk-based capital ratios, as

calculated under its home country

standard, must be at least 6 percent for

Tier 1 capital to total risk-based assets

and 10 percent for total capital to riskbased assets.

In addition, section 225.90 requires

that the foreign bank’s ratio of Tier 1

capital to total assets must be at least 3

percent. The Board solicits comment on

this requirement. The Board believes

that the imposition of a leverage ratio

requirement on a foreign bank

maintaining a branch, agency, or

commercial lending company in the

United States and that elects to be

treated as a financial holding company

is appropriate in order to ensure that the

capital standards applicable to foreign

banking organizations are comparable to

those for domestic depository

institutions. In addition, the Board

believes that imposing a 3 percent

leverage ratio requirement, rather than

the 5 percent required for domestic

depository institutions, is appropriate in

recognition of the fact that foreign banks

hold both banking and nonbanking

operations under the foreign bank.

Domestic bank holding companies,

which also hold banking and

nonbanking operations, are subject

under Regulation Y to a minimum

leverage ratio of 4 percent, or 3 percent

if they have implemented the market

risk amendment to the risk-based capital

guidelines or have a composite

supervisory rating of ‘‘1.’’ Most

internationally active foreign banks also

follow the market risk guidelines.

The Board recognizes that many

countries do not impose a leverage ratio

or similar requirements. U.S. banks are,

however, subject to a leverage ratio

requirement and in order to assure

comparability of capital standards, a

leverage ratio requirement for foreign

banks is being proposed.

The second method for a foreign

banking organization to be considered

well capitalized in section 225.90

applies to foreign banks whose home

country supervisors have not adopted

the Basel Accord standards and to any

other foreign banking organizations that

otherwise do not meet the standards set

out under the first method. Any such

institution may be considered ‘‘well

capitalized’’ only by obtaining from the

Board a prior determination that its

capital is otherwise comparable to the

capital that would be required of a U.S.

bank.

In order to qualify as well managed

under section 225.90, each U.S. branch,

agency, and commercial lending

company of a foreign banking

organization must have received at least

a satisfactory composite rating at the

most recent assessment. In addition, the

home country supervisor of the foreign

bank must consider the overall

operations of the foreign bank to be

satisfactory.

In determining whether a foreign bank

is well capitalized and well managed,

the Board may take into account the

foreign bank’s composition of capital,

accounting standards, long-term debt

ratings, reliance on government support

to meet capital standards, the extent to

which the foreign bank is subject to

comprehensive consolidated

supervision, and other factors that may

affect the analysis of capital and

management. The Board will consult

with the home country supervisor for

the foreign bank as appropriate. The

information gathered under these factors

will assist the Board in determining

whether the foreign bank operates under

capital and managerial standards that

are comparable to those applied to U.S.

banks. The Board expects that most

foreign banks that elect to be treated as

financial holding companies will be

subject to comprehensive consolidated

supervision. An election by a foreign

bank that is not subject to

comprehensive consolidated

supervision will receive a more detailed

review.

Section 225.91 How May a Foreign

Bank Elect To be Treated as a Financial

Holding Company?

The procedures applicable to a foreign

bank, or company that owns or controls

the foreign bank, electing to become a

financial holding company are similar

to the procedures discussed above for

domestic bank holding companies. The

foreign bank or company must file a

written declaration with the appropriate

Reserve Bank that it elects to be treated

as a financial holding company. The

declaration must be accompanied by the

risk-based and leverage capital ratios of

the foreign bank as of the close of the

most recent quarter and as of the close

of the most recent audited reporting

period, a certification that the foreign

bank is well capitalized as of the date

the foreign bank or company files its

election, and a certification that the

foreign bank is well managed as of the

date the foreign bank or company files

its election.

Section 225.92 How Does an Election

by a Foreign Bank Become Effective?

An election filed by a foreign bank or

company to become a financial holding

company under section 225.91 will not

become effective until the Board notifies

the foreign bank or company that the

foreign bank meets the standards set out

above. The Board will notify the foreign

bank or company of its finding within

30 days of the filing of the written

declaration, unless the Board

determines that it does not have

sufficient information on which to base

a determination. Before filing an

election to be treated as a financial

holding company, a foreign bank or

company may file with the Board a

request for review of its qualifications to

be treated as a financial holding

company. The Board will endeavor to

make a determination on such requests

within 30 days of receipt.

An election filed by a foreign bank or

company under this section will be

effective only if the Board finds that the

foreign bank is well capitalized and well

managed in accordance with capital and

management standards comparable to

those required of U.S. banks owned by

financial holding companies, and, in the

case of a foreign bank that operates a

branch in the United States that is

federally insured, the branch received a

rating of at least ‘‘satisfactory’’ under the

CRA at its most recent examination.

Section 225.93 What are the

Consequences of a Foreign Bank Failing

to Continue to Meet Applicable Capital

and Management Requirements?

This section parallels section 225.83,

with appropriate modifications. It sets

forth the procedures to be followed in

the event that a foreign bank that is

treated as a financial holding company

ceases to meet the applicable capital

and management requirements. It

provides for the execution of an

agreement designed to bring the foreign

bank back into compliance with the

requirements of the regulation and

permits the Board to impose certain

limitations on the U.S. activities of such

a foreign bank during any period of

noncompliance. Finally, the section sets

forth the consequences of a failure to

correct the noncompliance within a

period of 180 days. Such consequences

could include termination of the foreign

bank’s U.S. branches and agencies and

divestiture of its commercial lending

company subsidiaries or ceasing to

engage in the expanded activities

permitted for financial holding

companies.

3790 Federal Register / Vol. 65, No. 16 / Tuesday, January 25, 2000 / Rules and Regulations

Section 225.94 What are the

Consequences of an Insured Branch

Failing to Maintain a Satisfactory or

Better Rating Under the Community

Reinvestment Act?

This section provides that the

provisions of section 225.84, with

appropriate modifications, apply to a

foreign bank that operates an insured

branch, and its parent, and that is

treated as a financial holding. For these

purposes, the insured branch is treated

as an ‘‘insured depository institution.’’

Subpart A General Provisions; Section

225.2—Definitions

The Board also is amending the

definitions of ‘‘well capitalized’’ and

‘‘well managed’’ at sections 225.2(r)(2)

and 225.2(s) to take account of the

broader applicability of these

definitions under the Gramm-LeachBliley Act. The definition of well

capitalized has been amended to apply

to all depository institutions, rather than

insured depository institutions. The rule

applies the same capital requirements to

depository institutions that are not

FDIC-insured for purposes of

determining whether the institution is

well capitalized as apply to insured

depository institutions.

The definition of well managed has,

in the case of depository institutions

that have not received an examination

rating, been amended in subparagraph

(1)(ii) to allow the Board to determine

that an institution is well managed after

consulting with the appropriate Federal

banking agency for the institution. In

addition, the rule provides that a

depository institution resulting from the

merger of two or more institutions that

are well managed would be considered

to be well managed unless the Board

determined otherwise after consulting

with the appropriate Federal banking

agency.

Regulatory Flexibility Act Analysis

In accordance with section 3(a) of the

Regulatory Flexibility Act (5 U.S.C.

603(a)), the Board must publish an

initial regulatory flexibility analysis

with this interim regulation. This rule

implements provisions of Title I of the

Gramm-Leach-Bliley Act that allow

entities that qualify as financial holding

companies to engage in a broad range of

securities, insurance, and other

financial activities by providing the

Board with a simple, postcommencement notice. The interim rule

will enable bank holding companies and

foreign banks that qualify as financial

holding companies to engage in an

expanded range of activities using a

streamlined notification procedure.

The financial holding company

election procedure described in this rule

is voluntary, and the criteria set forth in

the rule for an effective election filing

are those required by the Gramm-LeachBliley Act. The Board has established a

simple, one-time procedure involving

minimum paperwork to fulfill the

statutory election requirement. In

addition, the new powers described in

the Act and implemented by this

regulation should enhance the overall

efficiency of bank holding companies

and the other financial companies that

seek to affiliate with them. The rule

applies to all companies that attempt to

qualify as financial holding companies,

regardless of their size, and allows small

organizations to take advantage of the

broad new powers conferred by the

Gramm-Leach-Bliley Act with minimal

additional burden. Finally, the Board

specifically seeks comment on the likely

burden this interim rule will impose on

entities that elect to become financial

holding companies.

Administrative Procedure Act

The Board will make this interim rule

effective on March 11, 2000 without

first reviewing public comments.

Pursuant to 5 U.S.C. § 553, the Board

finds that it is impracticable to review

public comments prior to the effective

date of the interim rule, and that there

is good cause to make the interim rule

effective on March 11, 2000, due to the

fact that the rule sets forth procedures

to implement statutory changes that will

become effective on March 11, 2000.

The Board is seeking public comment

on the interim rule and will amend the

rule as appropriate after reviewing the

comments.

Paperwork Reduction Act

In accordance with section 3506 of

the Paperwork Reduction Act of 1995

(44 U.S.C. Ch. 35; 5 CFR 1320 Appendix

A.1), the Board reviewed the proposed

rule under the authority delegated to the

Board by the Office of Management and

Budget in accordance with the

emergency review procedures of the

Paperwork Reduction Act of 1995.

The collection of information

requirements in this proposed

rulemaking are found in 12 CFR 225.82

(a) and (b). This information is required

to evidence compliance with the

requirements of Title I of the GrammLeach-Bliley Act (Pub. L. No. 106–103,

113 Stat. 1338 (1999)) which amends

section 4 of the Bank Holding Company

Act (12 U.S.C. 1843). The respondents

are current and future bank holding

companies and foreign banking

organizations.

The notice cited in 12 CFR 225.82(b)

provides that a bank holding company

may elect to become a financial holding

company by filing a simple written

declaration with the Federal Reserve.

The declaration must include

information identifying the company’s

subsidiary depository institutions and

their capital ratios, and a certification

that each depository institution is well

capitalized and well managed (for

specific details, see 12 CFR 225.82(b)).

There will be no reporting form for this

information collection. The agency form

number for this declaration will be the

FR 4010. The Board estimates that

approximately half of all bank holding

companies will file this declaration

during the first year and that it will take

on average approximately 15 minutes to

complete this information. This would

result in estimated annual burden of 625

hours. Based on a rate of $20 per hour,

the annual cost to the public for this

information collection is estimated to be

$12,500.

The OMB control number for this

interim rule is 7100–0292. The Federal

Reserve may not conduct or sponsor,

and an organization is not required to

respond to this information collection

unless the Board has displayed a valid

OMB control number.

A bank holding company may request

confidentiality for the information

contained in these information

collections pursuant to section (b)(4)

and (b)(6) of the Freedom of Information

Act (5 U.S.C. 552(b)(4) and (b)(6)).

Comments are invited on: (a) whether

the proposed collection of information

is necessary for the proper performance

of the Federal Reserve’s functions;

including whether the information has

practical utility; (b) the accuracy of the

Federal Reserve’s estimate of the burden

of the proposed information collection,

including the cost of compliance; (c)

ways to enhance the quality, utility, and

clarity of the information to be

collected; and (d) ways to minimize the

burden of information collection on

respondents, including through the use

of automated collection techniques or

other forms of information technology.

Comments on the collection of

information should be sent to the Office

of Management and Budget, Paperwork

Reduction Project, Washington, DC

20503, with copies of such comments to

be sent to Mary M. West, Federal

Reserve Board Clearance Officer,

Division of Research and Statistics, Mail

Stop 97, Board of Governors of the

Federal Reserve System, Washington,

DC 20551.

Federal Register / Vol. 65, No. 16 / Tuesday, January 25, 2000 / Rules and Regulations 3791

List of Subjects in 12 CFR Part 225

Administrative practice and

procedure, Banks, Banking, Federal

Reserve System, Holding companies,

Reporting and recordkeeping

requirements, Securities.

For the reasons set out in the

preamble, the Board amends 12 CFR

part 225 as follows:

PART 225—BANK HOLDING

COMPANY 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,

1828(o), 1831(i), 1831p–1, 1843(c)(8),

1844(b), 1972(l), 3106, 3108, 3310, 3331–

3351, 3907, and 3909.

2. Section 225.2(r)(2) and (s) are

revised to read as follows:

§ 225.2 Definitions.

* * * * *

(r) * * *

(2) Insured and uninsured depository

institutions— (i) Insured depository

institution. In the case of an insured

depository institution, ‘‘well

capitalized’’ means that the institution

has and maintains at least the capital

levels required to be well capitalized

under the capital adequacy regulations

or guidelines applicable to the

institution that have been adopted by

the appropriate Federal banking agency

for the institution under section 38 of

the Federal Deposit Insurance Act (12

U.S.C. 1831o).

(ii) Uninsured depository institution.

In the case of a depository institution

the deposits of which are not insured by

the Federal Deposit Insurance

Corporation, ‘‘well capitalized’’ means

that the institution has and maintains at

least the capital levels required for an

insured depository institution to be well

capitalized.

* * * * *

(s) Well managed—(1) In general. A

company or depository institution is

well managed if:

(i) At its most recent inspection or

examination or subsequent review by

the appropriate Federal banking agency

for the company or institution, the

company or institution received:

(A) At least a satisfactory composite

rating; and

(B) At least a satisfactory rating for

management and for compliance, if such

a rating is given; or

(ii) In the case of a company or

depository institution that has not

received an examination rating, the

Board has determined, after a review of

managerial and other resources of the

company or depository institution and

after consulting the appropriate Federal

banking agency for the institution, that

the company or institution is well

managed.

(2) Merged institutions. A depository

institution that results from the merger

of two or more depository institutions

that are well managed shall be

considered to be well managed unless

the Board determines otherwise after

consulting with the appropriate Federal

banking agency for each depository

institution involved in the merger.

(3) Foreign banking organizations.

Except as otherwise provided in this

part, a foreign banking organization

shall qualify under this paragraph(s) if

the combined operations of the foreign

banking organization in the United

States have received at least a

satisfactory composite rating at the most

recent annual assessment.

3. A new Subpart I is added after

Subpart H to read as follows:

Subpart I—Financial Holding

Companies

225.81 What is a financial holding

company?

225.82 How does a company elect to

become a financial holding company?

225.83 What are the consequences of failing

to continue to meet applicable capital

and management requirements?

225.84 What are the consequences of failing

to maintain a satisfactory or better rating

under the Community Reinvestment Act

at all insured depository institution

subsidiaries?

225.90 What are the requirements for a

foreign bank to be treated as a financial

holding company?

225.91 How may a foreign bank elect to be

treated as a financial holding company?

225.92 How does an election by a foreign

bank become effective?

225.93 What are the consequences of a

foreign bank failing to continue to meet

applicable capital and management

requirements?

225.94 What are the consequences of an

insured branch failing to maintain a

satisfactory or better rating under the

Community Reinvestment Act?

Subpart I—Financial Holding

Companies

§ 225.81 What is a financial holding

company?

(a) Definition. A financial holding

company is a bank holding company

that meets the requirements of this

section.

(b) Requirements to be a financial

holding company. In order to be a

financial holding company:

(1) All depository institutions

controlled by the bank holding company

must be and remain well capitalized;

(2) All depository institutions

controlled by the bank holding company

must be and remain well managed; and

(3) The bank holding company must

have made an effective election to

become a financial holding company.

(c) Requirements for foreign banks

that are or are owned by bank holding

companies—(1) Foreign banks with U.S.

branches or agencies. A foreign bank

that is a bank holding company and that

operates a branch or agency or owns or

controls a commercial lending company

in the United States must comply with

the requirements of this section,

§ 225.82 and §§ 225.90 through 225.93

in order to be a financial holding

company.

(2) Bank holding companies that own

foreign banks with U.S. branches or

agencies. A bank holding company that

owns a foreign bank that operates a

branch or agency or owns or controls a

commercial lending company in the

United States must comply with the

requirements of this section and

§ 225.82, and the foreign bank must

comply with §§ 225.90 through 225.93

in order for the company to be a

financial holding company.

§ 225.82 How does a company elect to

become a financial holding company?

(a) Filing requirement. A bank holding

company may elect to become a

financial holding company by filing a

written declaration with the appropriate

Federal Reserve Bank.

(b) Contents of declaration. The

declaration must:

(1) State that the bank holding

company elects to be a financial holding

company;

(2) Provide the name and head office

address of the company and of each

depository institution controlled by the

company;

(3) Certify that all depository

institutions controlled by the company

are well capitalized as of the date the

company files its election;

(4) Provide the capital ratios for all

relevant capital measures (as defined in

section 38 of the Federal Deposit

Insurance Act) as of the close of the

previous quarter for each depository

institution controlled by the company

on the date the company files its

election; and

(5) Certify that all depository

institutions controlled by the company

are well managed as of the date the

company files its election.

(c) Under what circumstances will the

Board find an election to be ineffective?

An election to become a financial

holding company shall not be effective

if, during the period provided in

paragraph (f) of this section, the Board

3792 Federal Register / Vol. 65, No. 16 / Tuesday, January 25, 2000 / Rules and Regulations

finds that as of the date the election is

received by the appropriate Federal

Reserve Bank:

(1) Any insured depository institution

controlled by the bank holding company

(except an institution excluded under

paragraph (e) of this section) has not

achieved at least a rating of ‘‘satisfactory

record of meeting community credit

needs’’ under the Community

Reinvestment Act at the institution’s

most recent examination; or

(2) Any depository institution

controlled by the bank holding company

is not both well capitalized and well

managed.

(d) May the Board impose supervisory

limits on financial holding companies?

The Board may, in the exercise of its

supervisory authority, restrict or limit

the commencement or conduct of

additional activities or acquisitions of a

financial holding company, or take

other appropriate action, if the Board

finds that the financial holding

company does not have the financial

resources, including capital resources,

or managerial resources to engage in

activities, make acquisitions, or retain

ownership of companies permitted for

financial holding companies.

(e) How is CRA performance of

recently acquired insured depository

institutions considered? An insured

depository institution will be excluded

for purposes of the review of CRA

ratings described in paragraph (c)(1) of

this section if:

(1) The bank holding company

acquired the insured depository

institution during the 12-month period

preceding the filing of an election under

paragraph (a) of this section;

(2) The bank holding company has

submitted an affirmative plan to the

appropriate Federal banking agency for

the institution to take actions necessary

for the institution to achieve at least a

rating of ‘‘satisfactory record of meeting

community credit needs’’ under the

Community Reinvestment Act at the

next examination of the institution; and

(3) The appropriate Federal banking

agency for the institution has accepted

that plan.

(f) When is an election effective? (1)

In general. An election described in

paragraph (a) of this section is effective

on the 31st day after the date that the

election was received by the appropriate

Federal Reserve Bank, unless the Board

notifies the bank holding company prior

to that time that the election is

ineffective.

(2) Earlier notification that an election

is effective. The Board or the

appropriate Federal Reserve Bank may

notify a bank holding company that its

election to become a financial holding

company is effective prior to the 31st

day after the election was filed with the

appropriate Federal Reserve Bank. Such

a notification must be in writing.

§ 225.83 What are the consequences of

failing to continue to meet applicable

capital and management requirements?

(a) Notice by the Board. If the Board

finds that any depository institution

controlled by a financial holding

company ceases to be well capitalized

or well managed, the Board will notify

the company in writing that it is not in

compliance with the applicable

requirement(s) for a financial holding

company and identify the areas of

noncompliance.

(b) Notification by a financial holding

company required. Promptly upon

becoming aware that any depository

institution controlled by the financial

holding company has ceased to be well

capitalized or well managed, the

company must notify the Board and

identify the depository institution

involved and the area of

noncompliance.

(c) Execution of agreement acceptable

to the Board—(1) Agreement required;

time period. Within 45 days after

receiving a notice under paragraph (a) of

this section, the company must execute

an agreement acceptable to the Board to

comply with all applicable capital and

management requirements.

(2) Extension of time for executing

agreement. Upon request by a company,

the Board may extend the 45-day period

under paragraph (c)(1) of this section if

the Board determines that granting

additional time is appropriate under the

circumstances. A request by a company

for additional time must include an

explanation of why an extension is

necessary.

(3) Agreement requirements. An

agreement required by paragraph (c)(1)

of this section to correct a capital or

management deficiency must:

(i) Explain the specific actions that

the company will take to correct all

areas of noncompliance;

(ii) Provide a schedule within which

each action will be taken;

(iii) Provide any other information

that the Board may require; and

(iv) Be acceptable to the Board.

(d) Limitations during period of

noncompliance. Until the Board

determines that a company has

corrected the conditions described in a

notice under paragraph (a) of this

section:

(1) The Board may impose any

limitations or conditions on the conduct

or activities of the company or any of its

affiliates as the Board finds to be

appropriate and consistent with the

purposes of the Bank Holding Company

Act; and

(2) The company and its affiliates may

not engage in any additional activity or

acquire control or shares of any

company under section 4(k) of the Bank

Holding Company Act without prior

approval from the Board.

(e) Consequences of failure to correct

conditions within 180 days—(1)

Divestiture of depository institutions. If

a company does not correct the

conditions described in a notice under

paragraph (a) of this section within 180

days of receipt of the notice or such

additional time as the Board may

permit, the Board may order the

company to divest ownership or control

of any depository institution owned or

controlled by the company. Such

divestiture must be done in accordance

with the terms and conditions

established by the Board.

(2) Alternative method of complying

with a divestiture order. A company

may comply with an order issued under

paragraph (e)(1) of this section by

ceasing to engage (both directly and

through any subsidiary that is not a

depository institution or a subsidiary of

a depository institution) in all activities

that are not permissible for a bank

holding company to conduct under

section 4(c)(8) of the Bank Holding

Company Act. The termination of

activities must be done within the time

period referred to in paragraph (e)(1) of

this section and subject to terms and

conditions acceptable to the Board.

(f) Consultation with other agencies.

In taking any action under this section,

the Board will consult with the relevant

Federal and state regulatory authorities.

§ 225.84 What are the consequences of

failing to maintain a satisfactory or better

rating under the Community Reinvestment

Act at all insured depository institution

subsidiaries?

(a) Limitations on activities—(1) In

general. Upon receiving a notice

regarding performance under the

Community Reinvestment Act in

accordance with paragraph (a)(2) of this

section, a financial holding company

may not:

(i) Commence any additional activity

under subsection 4(k) or 4(n) of the

Bank Holding Company Act; or

(ii) Directly or indirectly acquire

control of a company engaged in any

activity under subsections 4(k) or 4(n) of

the Bank Holding Company Act.

(2) Notification. A financial holding

company receives notice for purposes of

this paragraph at the time that the

appropriate Federal banking agency for

any insured depository institution

controlled by the company or the Board

Federal Register / Vol. 65, No. 16 / Tuesday, January 25, 2000 / Rules and Regulations 3793

provides notice to the institution or

company that the institution has

received a rating of ‘‘needs to improve

record of meeting community credit

needs’’ or ‘‘substantial noncompliance

in meeting community credit needs’’ in

the institution’s most recent

examination under the Community

Reinvestment Act.

(b) Exception for certain activities—

(1) Continuation of investment

activities. The prohibition in paragraph

(a) of this section does not prevent a

financial holding company from

continuing to make investments in the

ordinary course of conducting

investment activities under section

4(k)(4)(H) or insurance company

investment activities under section

4(k)(4)(I) of the Bank Holding Company

Act if:

(i) The financial holding company

lawfully was a financial holding

company and commenced the

investment activity under section

4(k)(4)(H) or the insurance company

investment activities under section

4(k)(4)(I) prior to the time that an

insured depository institution

controlled by the financial holding

company received a rating below

‘‘satisfactory record of meeting

community credit needs’’ under the

Community Reinvestment Act; and (ii)

The Board has not, in the exercise of its

supervisory authority, advised the

financial holding company that these

activities must be restricted.

(2) Activities that are closely related

to banking. The prohibition in

paragraph (a) of this section does not

prevent a financial holding company

from commencing any additional

activity or acquiring control of a

company engaged in any activity under

section 4(c) of the Bank Holding

Company Act, if the company complies

with the notice, approval, and other

requirements under that section and

section 4(j).

(c) Duration of prohibitions. The

prohibitions described in paragraph (a)

of this section shall continue in effect

until such time as each insured

depository institution controlled by the

financial holding company has achieved

at least a rating of ‘‘satisfactory record

of meeting community credit needs’’

under the Community Reinvestment Act

at the most recent examination of the

institution.

§ 225.90 What are the requirements for a

foreign bank to be treated as a financial

holding company?

(a) Foreign banks as financial holding

companies. A foreign bank that operates

a branch or agency or owns or controls

a commercial lending company in the

United States, and any company that

owns or controls such a foreign bank,

will be treated as a financial holding

company if:

(1) The foreign bank is and remains

well capitalized and well managed; and

(2) The foreign bank, or the company

that owns the foreign bank, has made an

effective election to be treated as a

financial holding company under this

subpart.

(b) Standards for ‘‘well capitalized.’’

A foreign bank will be considered ‘‘well

capitalized’’ if either:

(1)(i) Its home country supervisor, as

defined in § 211.21 of the Board’s

Regulation K (12 CFR 211.21), has

adopted risk-based capital standards

consistent with the Capital Accord of

the Basel Committee on Banking

Supervision (Basel Accord);

(ii) The foreign bank maintains a Tier

1 capital to total risk-based assets ratio

of 6 percent and a total capital to total

risk-based assets ratio of 10 percent, as

calculated under its home country

standard;

(iii) The foreign bank maintains a Tier

1 capital to total assets leverage ratio of

at least 3 percent; and

(iv) The Board determines that the

foreign bank’s capital is comparable to

the capital required for a U.S. bank

owned by a financial holding company;

or

(2) The foreign bank has obtained a

determination from the Board under

§ 225.91(c) that the foreign bank’s

capital is otherwise comparable to the

capital that would be required of a U.S.

bank owned by a financial holding

company.

(c) Standards for ‘‘well managed.’’ A

foreign bank will be considered ‘‘well

managed’’ if:

(1) Each of the U.S. branches,

agencies, and commercial lending

subsidiaries of the foreign bank has

received at least a satisfactory composite

rating at its most recent assessment;

(2) The home country supervisor of

the foreign bank considers the overall

operations of the foreign bank to be

satisfactory or better; and

(3) The Board determines that the

management of the foreign bank meets

standards comparable to those required

of a U.S. bank owned by a financial

holding company.

§ 225.91 How may a foreign bank elect to

be treated as a financial holding company?

(a) Filing requirement. A foreign bank

that operates a branch or agency or

owns or controls a commercial lending

company in the United States, or a

company that owns or controls such a

foreign bank, may elect to be treated as

a financial holding company by filing a

written declaration with the appropriate

Reserve Bank.

(b) Contents of declaration. The

declaration must:

(1) State that the foreign bank or the

company elects to be treated as a

financial holding company;

(2) Provide the risk-based and

leverage capital ratios of the foreign

bank as of the close of the most recent

quarter and as of the close of the most

recent audited reporting period;

(3) Certify that the foreign bank meets

the standards of well capitalized set out

in § 225.90(b)(1)(i),(ii) and (iii) or

§ 225.90(b)(2) as of the date the foreign

bank or company files its election; and

(4) Certify that the foreign bank is

well managed as defined in

§ 225.90(c)(1) and (2) as of the date the

foreign bank or company files its

election.

(c) Pre-clearance process. Before filing

an election to be treated as a financial

holding company, a foreign bank or

company may file a request for review

of its qualifications to be treated as a

financial holding company. The Board

will endeavor to make a determination

on such requests within 30 days of

receipt.

§ 225.92 How does an election by a foreign

bank become effective?

(a) In general. An election filed by a

foreign bank or company under § 225.91

will not be effective unless the Board

determines that—

(1) The foreign bank is well

capitalized and well managed; and

(2) In the case of a foreign bank that

operates a branch in the United States

that is insured by the Federal Deposit

Insurance Corporation, the branch has

received at its most recent examination

a rating of ‘‘satisfactory record of

meeting community credit needs’’ or

better under the Community

Reinvestment Act.

(b) Factors used in the Board’s

determination regarding comparability

of capital and management. In

determining whether a foreign bank is

well capitalized and well managed in

accordance with comparable capital and

management standards, the Board will

give due regard to national treatment

and equality of competitive opportunity.

In this regard, the Board may take into

account the foreign bank’s composition

of capital, accounting standards, longterm debt ratings, reliance on

government support to meet capital

requirements, the extent to which the

foreign bank is subject to

comprehensive consolidated

supervision, and other factors that may

affect analysis of capital and

management. The Board will consult

3794 Federal Register / Vol. 65, No. 16 / Tuesday, January 25, 2000 / Rules and Regulations

with the home country supervisor for

the foreign bank as appropriate.

(c) Timing. The Board will notify a

foreign bank or company of its

determination under this section within

30 days of the filing of the election

unless the Board determines that it does

not have sufficient information on

which to base a finding.

§ 225.93 What are the consequences of a

foreign bank failing to continue to meet

applicable capital and management

requirements?

(a) Notice by the Board. If a foreign

bank or company has made an effective

election to be treated as a financial

holding company under this subpart

and the Board finds that the foreign

bank ceases to be well capitalized or

well managed, the Board will notify the

foreign bank or company in writing that

it is not in compliance with the

applicable requirement(s) for a financial

holding company and identify the areas

of noncompliance.

(b) Notification by a financial holding

company required. Promptly upon

becoming aware that it has ceased to be

well capitalized or well managed, the

foreign bank, or any company that

controls such foreign bank, must notify

the Board and identify the area of

noncompliance.

(c) Execution of agreement acceptable

to the Board— (1) Agreement required;

time period. Within 45 days after

receiving a notice under paragraph (a) of

this section, the foreign bank or

company must execute an agreement

acceptable to the Board to comply with

all applicable capital and management

requirements.

(2) Extension of time for executing

agreement. Upon request by a company,

the Board may extend the 45-day period

under paragraph (c)(1) of this section if

the Board determines that granting

additional time is appropriate under the

circumstances. A request by a company

for additional time must include an

explanation of why an extension is

necessary.

(3) Agreement requirements. An

agreement required by paragraph (c)(1)

of this section to correct a capital or

management deficiency must:

(i) Explain the specific actions that

the foreign bank or company will take

to correct all areas of noncompliance;

(ii) Provide a schedule within which

each action will be taken;

(iii) Provide any other information

that the Board may require; and

(iv) Be acceptable to the Board.

(d) Limitations during period of

noncompliance. Until the Board

determines that a company has

corrected the conditions described in a

notice under paragraph (a) of this

section:

(1) The Board may impose any

limitations or conditions on the conduct

or the U.S. activities of the foreign bank

or company or any of its affiliates as the

Board finds to be appropriate and

consistent with the purposes of the

Bank Holding Company Act; and

(2) The company and its affiliates may

not engage in any new activity in the

United States or acquire control or

shares of any company under section

4(k) of the Bank Holding Company Act

without prior approval from the Board.

(e) Consequences of failure to correct

conditions within 180 days—(1)

Termination of offices and divestiture. If

a foreign bank or company does not

correct the conditions described in a

notice under paragraph (a) of this

section within 180 days of receipt of the

notice or such additional time as the

Board may permit, the Board may order

the foreign bank or company to

terminate the foreign bank’s U.S.

branches and agencies and divest any

commercial lending companies owned

or controlled by the foreign bank or

company. Such divestiture must be

done in accordance with the terms and

conditions established by the Board.

(2) Alternative method of complying

with a divestiture order. A foreign bank

or company may comply with an order

issued under paragraph (e)(1) of this

section by ceasing to engage (both

directly and through any subsidiary) in

all activities that are not permissible for

a foreign bank to conduct under sections

2(h) and 4(c) of the Bank Holding

Company Act. The termination of

activities must be done within the time

period referred to in paragraph (e)(1) of

this section and subject to terms and

conditions acceptable to the Board.

(f) Consultation with other agencies.

In taking any action under this section,

the Board will consult with the relevant

Federal and state regulatory authorities.

§ 225.94 What are the consequences of an

insured branch failing to maintain a

satisfactory or better rating under the

Community Reinvestment Act?

(a) Insured branch as an ‘‘insured

depository institution.’’ A U.S. branch of

a foreign bank that is insured by the

Federal Deposit Insurance Corporation

shall be treated as an ‘‘insured

depository institution’’ for purposes of

§ 225.84.

(b) Applicability. The provisions of

§ 225.84, with the modifications

contained in this section, shall apply to

a foreign bank that operates an insured

branch referred to in paragraph (a) of

this section, and any company that

owns or controls such a foreign bank,

that has made an effective election

under § 225.92 in the same manner and

to the same extent as they apply to a

financial holding company.

By order of the Board of Governors of the

Federal Reserve System, January 18, 2000.

Jennifer J. Johnson,

Secretary of the Board.

[FR Doc. 00–1646 Filed 1–24–00; 8:45 am]

BILLING CODE 6210–01–P

DEPARTMENT OF TRANSPORTATION

Federal Aviation Administration

14 CFR Part 39

[Docket No. 98–NM–309–AD; Amendment

39–11518; AD 2000–02–01]

RIN 2120–AA64

Airworthiness Directives; McDonnell

Douglas Model DC–8 Series Airplanes

AGENCY: Federal Aviation

Administration, DOT.

ACTION: Final rule.

SUMMARY: This amendment adopts a

new airworthiness directive (AD),

applicable to certain McDonnell

Douglas Model DC–8 series airplanes,

that requires detailed visual and eddy

current inspections of the lower wing

skin at the 3 outboard fasteners of the

stringer 64 end fitting to detect cracks;

and corrective actions, if necessary. This

amendment is prompted by reports of

fatigue cracks found in the lower wing

skin initiating from the outboard

fasteners of the stringer 64 end fitting.

The actions specified by this AD are

intended to prevent such fatigue

cracking, which could reduce structural

integrity and loss of fail-safe capability

of the airplane.

DATES: Effective February 29, 2000.

The incorporation by reference of

certain publications listed in the

regulations is approved by the Director

of the Federal Register as of February

29, 2000.

ADDRESSES: The service information

referenced in this AD may be obtained

from Boeing Commercial Aircraft

Group, Long Beach Division, 3855

Lakewood Boulevard, Long Beach,

California 90846, Attention: Technical

Publications Business Administration,

Dept. C1–L51 (2–60). This information

may be examined at the Federal

Aviation Administration (FAA),

Transport Airplane Directorate, Rules

Docket, 1601 Lind Avenue, SW.,

Renton, Washington; or at the FAA,

Transport Airplane Directorate, Los

Angeles Aircraft Certification Office,