Federal Reserve Board invites public comments on determining control of banks
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Federal Reserve Board invites public comment on proposal to simplify and increase the transparency of rules for determining control of a banking organization

April 24, 2019

The Federal Reserve Board on Tuesday invited public comment on a proposal that would simplify and increase the transparency of the Board’s rules for determining control of a banking organization. If a company has control over a banking organization, the company generally becomes subject to the Board’s rules and regulations.

Over time, the Board has issued public and private interpretations on the topic of control, but banking organizations and their investors often remain uncertain about whether a proposed investment is controlling. The proposal would set forth a comprehensive regulatory framework for control determinations and request comment on the framework.

Jerome Powel
Jerome Powel

“Providing all stakeholders with clearer rules of the road for control determinations will responsibly reduce regulatory burden,” Chair Jerome H. Powell said. “As a result, it will be easier for banks, particularly community banks, to raise capital to support lending and investment.”

In particular, the proposal lays out several factors and thresholds that the Board will use to determine if a company has control over a bank. The key factors include the company’s total voting and non-voting equity investment in the bank; director, officer, and employee overlaps between the company and the bank; and the scope of business relationships between the company and the bank. The proposal clearly describes what combination of those factors would and would not trigger control.

As a result, the proposal would reduce complexity and burden for banking organizations and their investors, and provide clarity so that a wide range of stakeholders can better understand the control rules.

“The Board’s control framework has developed over time through a Delphic and hermetic process that has generally not benefited from public comment,” Vice Chair for Supervision Randal K. Quarles said. “This proposal would place substantially all of the Board’s control positions into a comprehensive public regulatory proposal and allow public comment on those positions to improve their content and consistency.”

The attached chart shows how different combinations of the factors would or would not result in control. Comments will be accepted for 60 days after publication in the Federal Register.

For media inquiries, call 202-452-2955

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