20 CSR 1140-2.138 - Financial Subsidiaries

Current through Register Vol. 46, No. 24, December 15, 2021

PURPOSE: This section sets forth authorized activities, approval procedures, and conditions for banks and trust companies engaging in activities through a financial subsidiary under section 362.105.1(15), RSMo 2000. In the interests of being brief and concise, the regulation does not include certain restrictions applicable only to extremely large institutions. The Division of Finance will amend the regulation to include these restrictions if appropriate in the future.

(1) Financial Subsidiary Powers. A bank or trust company may establish a "financial subsidiary." A financial subsidiary is any subsidiary of the bank or trust company other than a subsidiary that conducts only a) activities in which its parent bank or trust company may engage directly, and/or b) activities that are authorized for subsidiaries of that bank or trust company under Missouri statutes or regulations other than this regulation or section 362.105.1(15), RSMo 2000. A financial subsidiary may engage in any of the activities authorized for a national bank financial subsidiary under the Gramm-Leach-Bliley Financial Modernization Act of 1999 and the implementing regulations and official federal agency interpretations.
(2) Requirements. To establish or continue to hold an interest in a financial subsidiary, a bank or trust company must:
(A) Meet the Missouri minimum capital requirement as defined in section (5) of this regulation;
(B) Be, along with each of its depository institution affiliates, well capitalized and well managed pursuant to the definitions included in section (5) of this regulation;
(C) In addition to providing information prepared in accordance with generally accepted accounting principles, separately present financial information for the institution in the manner provided in paragraph (5)(C)2. of this rule in any published or posted financial statement of the institution;
(D) Have aggregate consolidated total assets of all financial subsidiaries not exceeding forty-five percent (45%) of the bank or trust company's consolidated total assets;
(E) Have reasonable policies and procedures to preserve the separate corporate identity and limited liability of the institution and the financial subsidiaries of the institution;
(F) Have procedures for identifying and managing financial and operational risks within the institution and the financial subsidiary that adequately protect the institution from such risks;
(G) Have obtained Community Reinvestment Act (CRA) ratings of "satisfactory record of meeting community credit needs" or better on the most recent CRA examination of the bank or trust company and any of its insured depository institution affiliates; and
(H) Comply with the requirements of sections 23A and 23B of the Federal Reserve Act applicable to financial subsidiaries.
(3) Notice and Approval Process. A bank or trust company establishing a financial subsidiary to conduct only agency activities must provide the Division of Finance with a written notice within thirty (30) days after such establishment. However, a bank or trust company must obtain prior written approval from the Division of Finance before any of its financial subsidiaries can conduct any activities as principal.
(4) Remedies for Failure to Meet Requirements.
(A) If a bank or trust company does not continue to satisfy the requirements of subsections (2)(A) through (2)(F) of this regulation for establishing or holding an interest in a financial subsidiary, the bank or trust company must, within forty-five (45) days after receiving written notice from the Division of Finance of such noncompliance, either enter into an agreement with the Division of Finance to comply with such sections or be subject to enforcement action to require such compliance, which may include, but will not be limited to, restrictions on the activities of the institution or any of its subsidiaries or, if the noncompliance continues for one hundred eighty (180) days or more after the written notice, divestiture of ownership in the financial subsidiary.
(B) The remedies specifically mentioned in subsection (4)(A) do not limit any ability of the Division of Finance to take any enforcement action based on any violation of statute or regulation or on any safety and soundness issue, including, but not limited to violations of other sections of this regulation.
(5) Definitions.
(A) "Establish a financial subsidiary" means to acquire control of a financial subsidiary or to control any subsidiary that commences financial subsidiary activities.
(B) "Missouri minimum capital requirement" means a level of capital which equals or exceeds the required minimum level specified by the Division of Finance.
(C) Well capitalized.
1. "Well capitalized" means an institution has a level of capital designated as "well capitalized" pursuant to 12 U.S.C. 1831 by the institution's appropriate federal banking agency, as defined in 12 U.S.C. 1813.
2. Provided, however, that for a bank or trust company that controls a financial subsidiary to be "well capitalized," it must also remain well capitalized as described in paragraph (5)(C)1. after deducting the aggregate amount of its outstanding equity investment, including retained earnings, in its financial subsidiaries from its total assets and tangible equity and also deducting such investment from its total risk-based capital, and the bank or trust company will not consolidate the assets and liabilities of the financial subsidiary with those of the bank or trust company for purposes of determining regulatory capital under this subsection.
(D) "Well managed" means:
1. An institution has received a composite rating of 1 or 2 under the Uniform Financial Institutions Rating System (or an equivalent rating under an equivalent rating system) in connection with the most recent Division of Finance or federal regulatory agency examination or subsequent review of the institution and, at least a rating of 2 for management; or
2. In the case of an institution that has not been examined by the Division of Finance or a federal bank regulatory agency, the existence and use of managerial resources that the Division of Finance determines are satisfactory.


20 CSR 1140-2.138
AUTHORITY: sections 361.105, 362.105 and 362.106, RSMo 2000.* This rule originally filed as 4 CSR 140-2.138. Original rule filed Dec. 29, 2000, effective Aug. 30, 2001. Moved to 20 CSR 1140-2.138, effective Aug. 28, 2006.

*Original authority: 361.105, RSMo 1967, amended 1993, 1994, 1995; 362.105, RSMo 1939, amended 1949, 1963, 1965, 1967, 1977, 1983, 1986, 1990, 1991, 1992, 1995, 2000; 362.106, RSMo 1981, amended 1985, 1990.

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