12 CFR 225.113 - Services under section 4(a) of Bank Holding Company Act.

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§ 225.113 Services under section 4(a) of Bank Holding Company Act.
(a) The Board of Governors has been requested for an opinion as to whether the performance of certain functions by a bank holding company for four banks of which it owns less than 25 percent of the voting shares is in violation of section 4(a) of the Bank Holding Company Act.
(b) It is claimed that the holding company is engaged in “managing” four nonsubsidiary banks, for which services it receives “management fees.” Specifically, the company engages in the following activities for the four nonsubsidiary banks: (1) Establishment and supervision of loaning policies; (2) direction of the purchase and sale of investment securities; (3) selection and training of officer personnel; (4) establishment and enforcement of operating policies; and (5) general supervision over all policies and practices.
(c) The question raised is whether these activities are prohibited by section 4(a)(2) of the Bank Holding Company Act, which permits a bank holding company to engage in only three categories of business: (1) Banking; (2) managing or controlling banks; and (3) furnishing services to or performing services for any bank of which the holding company owns or controls 25 percent or more of the voting shares.
(d) Clearly, the activities of the company with respect to the four nonsubsidiary banks do not constitute “banking.” With respect to the business of “managing or controlling” banks, it is the Board's view that such business, within the purview of section 4(a)(2), is essentially the exercise of a broad governing influence of the sort usually exercised by bank stockholders, as distinguished from direct or active participation in the establishment or carrying out of particular policies or operations. The latter kinds of activities fall within the third category of businesses in which a bank holding company is permitted to engage. In the Board's view, the activities enumerated above fall in substantial part within that third category.
(e) Section 4(a)(2), like all other sections of the Holding Company Act, must be interpreted in the light of all of its provisions, as well as in the light of other sections of the Act. The expression “managing * * * banks,” if it could be taken by itself, might appear to include activities of the sort enumerated. However, such an interpretation of those words would virtually nullify the last portion of section 4(a)(2), which permits a holding company to furnish services to or perform services for “any bank of which it owns or controls 25 per centum or more of the voting shares.”
(f) Since Congress explicitly authorized the performance of services for banks that are at least 25 percent owned by a holding company, it obviously intended that the holding company should not perform services for banks in which it owns less than 25 percent of the voting shares. However, if the second category—“managing or controlling banks”—were interpreted to permit the holding company to perform services for any bank, including a bank in which it held less than 25 percent of the stock (or no stock whatsoever), the last clause of section 4(a)(2) would be meaningless.
(g) It is principally for this reason—that is, to give effective meaning to the final clause of section 4(a)(2)—that the Board interprets “managing or controlling banks” in that provision as referring to the exercise of a stockholder's management or control of banks, rather than direct and active participation in their operations. To repeat, such active participation in operations falls within the third category (“furnishing services to or performing services for any bank”) and consequently may be engaged in only with respect to banks in which the holding company “owns or controls 25 per centum or more of the voting shares.”
(h) Accordingly, it is the Board's conclusion that, in performing the services enumerated, the bank holding company is “furnishing services to or performing services for” the four banks referred to. Under the Act such furnishing or performing of services is permissible only if the holding company owns or controls 25 percent of the voting shares of each bank receiving such services, and, since the company owns less than 25 percent of the voting shares of these banks, it follows that these activities are prohibited by section 4(a)(2).
(i) While this conclusion is required, in the Board's opinion, by the language of the statute, it may be noted further that any other conclusion would make it possible for bank holding company or any other corporation, through arrangements for the “managing” of banks in the manner here involved, to acquire effective control of banks without acquiring bank stocks and thus to evade the underlying objectives of section 3 of the Act.
[25 FR 281, Jan. 14, 1960. Redesignated at 36 FR 21666, Nov. 12, 1971]

Title 12 published on 2014-01-01

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For a complete list of all Rules, Proposed Rules, and Notices view the Rulemaking tab.

  • 2014-07-01; vol. 79 # 126 - Tuesday, July 1, 2014
    1. 79 FR 37166 - Interagency Guidelines Establishing Information Security Standards
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      FEDERAL RESERVE SYSTEM
      Final rule; technical amendment.
      Effective Date: This rule is effective July 31, 2014.
      12 CFR Parts 208 and 225

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United States Code
U.S. Code: Title 12 - BANKS AND BANKING

§ 1817 - Assessments

§ 1818 - Termination of status as insured depository institution

§ 1828 - Regulations governing insured depository institutions

§ 1831i - Agency disapproval of directors and senior executive officers of insured depository institutions or depository institution holding companies

12 U.S. Code § 1801 to 1805 - Omitted

§ 1843 - Interests in nonbanking organizations

§ 1844 - Administration

§ 1851 - Prohibitions on proprietary trading and certain relationships with hedge funds and private equity funds

§ 1972 - Certain tying arrangements prohibited; correspondent accounts

§ 3106 - Nonbanking activities of foreign banks

§ 3108 - Regulation and enforcement

§ 3310 - Establishment of Appraisal Subcommittee

§ 3331 - Purpose

§ 3332 - Functions of Appraisal Subcommittee

§ 3333 - Chairperson of Appraisal Subcommittee; term of Chairperson; meetings

§ 3334 - Officers and staff

§ 3335 - Powers of Appraisal Subcommittee

§ 3336 - Procedures for establishing appraisal standards and requiring use of certified and licensed appraisers

§ 3337 - Startup funding

§ 3338 - Roster of State certified or licensed appraisers; authority to collect and transmit fees

§ 3339 - Functions of Federal financial institutions regulatory agencies relating to appraisal standards

§ 3340 - Time for proposal and adoption of standards

§ 3341 - Functions of Federal financial institutions regulatory agencies relating to appraiser qualifications

§ 3342 - Transactions requiring services of State certified appraiser

§ 3343 - Transactions requiring services of State licensed appraiser

§ 3344 - Time for proposal and adoption of rules

§ 3345 - Certification and licensing requirements

§ 3346 - Establishment of State appraiser certifying and licensing agencies

§ 3347 - Monitoring of State appraiser certifying and licensing agencies

§ 3348 - Recognition of State certified and licensed appraisers for purposes of this chapter

§ 3349 - Violations in obtaining and performing appraisals in federally related transactions

§ 3350 - Definitions

§ 3351 - Miscellaneous provisions

§ 3907 - Capital adequacy

§ 3909 - General authorities

U.S. Code: Title 15 - COMMERCE AND TRADE

Title 12 published on 2014-01-01

The following are ALL rules, proposed rules, and notices (chronologically) published in the Federal Register relating to 12 CFR 225 after this date.

  • 2014-07-01; vol. 79 # 126 - Tuesday, July 1, 2014
    1. 79 FR 37166 - Interagency Guidelines Establishing Information Security Standards
      GPO FDSys XML | Text
      FEDERAL RESERVE SYSTEM
      Final rule; technical amendment.
      Effective Date: This rule is effective July 31, 2014.
      12 CFR Parts 208 and 225