Source: https://www.global-regulation.com/law/united-states/30540/regulations-q%252c-y%252c-and-ll%253a-small-bank-holding-company-policy-statement%253b-capital-adequacy-of-board-regulated-institutions%253b-bank-holding-compan.html
Timestamp: 2018-08-21 22:28:50
Document Index: 632453181

Matched Legal Cases: ['art 217', 'art 217', 'art 238', 'art 225', '§ 217', '§ 225', '§ 225', '§ 225', '§ 225', '§ 225', '§ 225', '§ 225', '§ 238', '§ 238']

Regulations Q, Y, and LL: Small Bank Holding Company Policy Statement; Capital Adequacy of Board-Regulated Institutions; Bank Holding Companies; Savings and Loan Holding Companies (United States)
Link to law: https://www.federalregister.gov/articles/text/raw_text/201/508/513.txt
The Board is adopting final amendments (Final Rule) to the Small Bank Holding Company Policy Statement (Regulation Y, Appendix C) (Policy Statement) that: raise from $500 million to $1 billion the asset threshold to qualify for the Policy Statement; and expand the scope of companies eligible under the Policy Statement to include savings and loan holding companies. The Board is also adopting final conforming revisions to Regulation Y and Regulation LL, the Board's regulations governing the operations and activities of bank holding companies and savings and loan holding companies, respectively, and Regulation Q, the Board's regulatory capital rules.
On February 3, 2015, the Board invited comment on a proposed rule (Proposed Rule) 1
to implement Public Law 113-250 (the Act). 2
The Proposed Rule proposed increasing the amount of assets qualifying holding companies may have, expanding the application of the Policy Statement to qualifying savings and loan holding companies, revising the applicability of the Board's regulatory capital rules 3
to exclude savings and loan holding companies subject to the Policy Statement, and revising certain reporting requirements. Specifically, the Proposed Rule would allow bank holding companies and savings and loan holding companies with less than $1 billion in total consolidated assets to qualify under the Policy Statement, provided the holding companies also comply with three qualitative requirements (Qualitative Requirements). Previously, only bank holding companies with less than $500 million in total consolidated assets that complied with the Qualitative Requirements could qualify under the Policy Statement. With the exception of the proposed changes to the reporting requirements, the Board is adopting as final the Proposed Rule without changes. 4
Previously, the Policy Statement applied only to bank holding companies with pro forma consolidated assets of less than $500 million that met the following Qualitative Requirements: (i) Were not engaged in significant nonbanking activities either directly or through a nonbank subsidiary; (ii) did not conduct significant off-balance sheet activities (including securitization and asset management or administration) either directly or through a nonbank subsidiary; 5
and (iii) did not have a material amount of debt or equity securities outstanding (other than trust preferred securities) that are registered with the Securities and Exchange Commission. The Board last raised the asset threshold in 2006 when it increased it from $150 million to $500 million. 6
The Board received 11 comments on the Proposed Rule. Comments were submitted by financial trade associations, individuals associated with financial institutions, and a law firm that represents bank holding companies and savings and loan holding companies. While each commenter expressed general support for the Proposed Rule, some commenters recommended revisions to the Proposed Rule. For instance, one commenter expressed support for raising the asset threshold higher than $1 billion. Another commenter expressed support for the nonbanking and off-balance sheet activity requirements but suggested that the Board consider rescinding or revising the requirement relating to outstanding debt or equity securities registered with the SEC. The Board's responses to these comments are discussed below.
Under the Final Rule, a holding company with less than $1 billion in total consolidated assets may qualify under the Policy Statement, provided it also complies with the Qualitative Requirements. This new asset limit is set by statute. 7
As noted above, commenters generally supported the Board's proposal to increase the scope of the Policy Statement by allowing firms with less than $1 billion in total assets to qualify. One commenter suggested that the threshold be increased to $5 billion. The Act directs the Board to increase the threshold to $1 billion, and section 171 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) 8
effectively prevents the threshold from being raised any higher.
As explained in the Proposed Rule, this change requires other modifications to the Policy Statement to take into account the status of savings associations under the Bank Holding Company Act of 1956, as amended (BHC Act). The first Qualitative Requirement uses the terms “nonbanking activities” and “nonbank subsidiary” to refer to the activities of a bank holding company. Under the BHC Act, however, control of a savings association by a bank holding company is considered a nonbanking activity. 9
Because savings and loan holding companies control savings associations, all activities of savings and loan holding companies, including the control of savings associations would be considered nonbanking activities under the Policy Statement.
This outcome would be inconsistent with Congressional intent to apply the Policy Statement to savings and loan holding companies. 10
The Board therefore will treat subsidiary savings associations of savings and loan holding companies as if they were banks for purposes of applying the Policy Statement.
As is the case with bank holding companies, whether a savings and loan holding company engages in “significant” nonbanking activities will depend on the scope of the activities of the savings and loan holding company, the nature and level of risk of the activities, the condition of the savings and loan holding company, and other criteria as appropriate. 11
The Final Rule retains the Qualitative Requirements without change. One commenter noted that the Qualitative Requirements concerning nonbanking and off-balance sheet activities adequately cover bank holding companies and savings and loan holding companies that meet the size threshold but have unusually complex activities at the holding company level. None of the commenters expressed concerns related to the nonbanking or off-balance sheet activities requirements. Consistent with the Board's previously-issued guidance on these two Qualitative Requirements, 12
whether a bank holding company or savings and loan holding company engages in significant nonbanking or off-balance sheet activities will continue to depend on a consideration of the scope of the activities, the nature and level of risk of the activities, the condition of the holding company and its subsidiary depository institution, and other criteria as appropriate. As previously stated, determinations of significance are made on a case-by-case basis, and relatively few bank holding companies or savings and loan holding companies are likely to be excluded from the Policy Statement due to the Qualitative Requirements concerning nonbanking and off-balance sheet activities. 13
The exclusion from the Policy Statement of any bank holding company that has a material amount of SEC-registered debt or equity securities reflected the view that SEC registrants typically exhibited a degree of complexity of operations and access to multiple funding sources that warranted exclusion from the Policy Statement. 14
Determinations of materiality are made on a case-by-case basis in order to assess the complexity of a firm. In considering whether a savings and loan holding company or bank holding company has a material amount of SEC-registered debt or equity securities outstanding that contributes to its complexity (other than trust preferred securities), the Board may consider, among other factors: The number and type of classes and series of stock issued; the holding company's market capitalization; the number of outstanding shares; the average trading volume; the holding company's history of issuing equity and debt securities, including whether the entity has issued any other securities that are not registered with the SEC ( e.g., privately-placed securities); the nature and distribution of ownership; whether the securities are listed on a national exchange; whether the holding company qualifies as a “smaller reporting company” pursuant to the SEC's regulations and related interpretations; and the amount, type, and terms of any debt instruments issued by the entity. While the Policy Statement has included the “materiality” standard since 2006, as a general matter, application of this standard has not resulted in many bank holding companies being excluded from the Policy Statement. After considering the concerns raised by the commenter, the Board is adopting the Qualitative Requirements unchanged.
When the Board proposed the Proposed Rule, the Board separately revised Regulation Q, 12 CFR part 217, through issuance of an interim final rule (Interim Final Rule), to exclude a qualifying savings and loan holding company from consolidated regulatory capital requirements. 15
The Interim Final Rule gave effect to the Act, which immediately excepted savings and loan holding companies that complied with the Policy Statement then in effect from the provisions of section 171 of the Dodd-Frank Act. 16
At that time, the Policy Statement applied to firms with less than $500 million in total consolidated assets so the Interim Final Rule contained the same limit. In the Proposed Rule, the Board proposed further revisions to Regulation Q that would expand the scope of the exclusion for savings and loan holding companies to firms with less than $1 billion in total consolidated assets that also meet the Qualitative Requirements. The proposed revisions to Regulation Q in the Proposed Rule would supersede the changes to Regulation Q from the Interim Final Rule. The Board did not receive any comments concerning the proposed change to Regulation Q. The Board is adopting as final the proposed revisions to Regulation Q that conform it to reflect the revised Policy Statement.
• In section 217.1(c)(1)(iii), Regulation Q (12 CFR part 217) excludes savings and loan holding companies that are subject to the Policy Statement through operation of section 238.9 of the Board's Regulation LL (12 CFR part 238).
• In section 225.2(r), footnote 2, the footnote describing the application of the definition of “well-capitalized” in the Board's Regulation Y (12 CFR part 225) applies to entities with less than $1 billion of total assets.
• In section 225.4(b)(2)(iii), different pro forma financial information is required of smaller bank holding companies with less than $1 billion in total assets than for larger bank holding companies under section 225.4(b)(1) of the Board's Regulation Y.
• In section 225.14(a)(1)(v), different pro forma financial information is required of smaller bank holding companies with less than $1 billion in total assets than for larger bank holding companies under section 225.14 of the Board's Regulation Y.
• In section 225.17(a)(6), footnote 6, a bank holding company with less than $1 billion in assets can satisfy the debt requirement if it complies with the Policy Statement.
• In section 225.23(a)(1)(iii), different pro forma financial information is required of smaller bank holding companies with less than $1 billion in total assets than for larger bank holding companies under section 225.23 of the Board's Regulation Y.
The Regulatory Flexibility Act, 5 U.S.C. 601 et seq., generally requires that an agency provide a final regulatory flexibility analysis in connection with a final rule. Under regulations issued by the Small Business Administration, a small bank holding company, bank, or savings and loan holding company is defined as having assets of $550 million or less (collectively, small banking organizations). 17
As of December 31, 2014, there were approximately 3,862 small bank holding companies and 275 small savings and loan holding companies.
Administrative practice and procedure, Banks, banking, Capital, Federal Reserve System, Holding companies, Reporting and recordkeeping requirements, Securities.
12 U.S.C. 248(a), 321-338a, 481-486, 1462a, 1467a, 1818, 1828, 1831n, 1831o, 1831p-l, 1831w, 1835, 1844(b), 1851, 3904, 3906-3909, 4808, 5365, 5368, 5371.
2. In § 217.1, revise paragraph (c)(1)(iii) to read as follows:
12 U.S.C. 1817(j)(13), 1818, 1828(o), 1831i, 1831p-1, 1843(c)(8), 1844(b), 1972(1), 3106, 3108, 3310, 3331-3351, 3906, 3907, and 3909; 15 U.S.C. 1681s, 1681w, 6801 and 6805.
4. In § 225.2, paragraph (r), revise footnote 2 to read as follows:
5. In § 225.4, revise paragraph (b)(2)(iii) to read as follows:
§ 225.4
6. In § 225.14, revise paragraph (a)(1)(v) to read as follows:
§ 225.14
7. In § 225.17, in paragraph (a)(6), revise footnote 6 to read as follows:
8. In § 225.23, revise paragraph (a)(1)(iii) to read as follows:
This policy statement applies only to bank holding companies with pro forma consolidated assets of less than $1 billion that (i) are not engaged in significant nonbanking activities either directly or through a nonbank subsidiary; (ii) do not conduct significant off-balance sheet activities (including securitization and asset management or administration) either directly or through a nonbank subsidiary; and (iii) do not have a material amount of debt or equity securities outstanding (other than trust preferred securities) that are registered with the Securities and Exchange Commission. The Board may in its discretion exclude any bank holding company, regardless of asset size, from the policy statement if such action is warranted for supervisory purposes. 1
With the exception of section 4 (Additional Application Requirements for Expedited/Waived Processing), the policy statement applies to savings and loan holding companies as if they were bank holding companies.
11. Add § 238.9 to subpart A to read as follows:
§ 238.9