[Federal Register: February 28, 2006 (Volume 71, Number 39)]
[Rules and Regulations]
[Page 9897-9903]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr28fe06-2]
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FEDERAL RESERVE SYSTEM
12 CFR Part 225
[Regulation Y; Docket No. 1235]
Capital Adequacy Guidelines for Bank Holding Companies; Small
Bank Holding Company Policy Statement; Definition of a Qualifying Small
Bank Holding Company
AGENCY: Board of Governors of the Federal Reserve System.
ACTION: Final rule.
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SUMMARY: The Board of Governors of the Federal Reserve System (Board)
is amending the asset size threshold and other criteria for determining
whether a bank holding company (BHC) qualifies for the Board's Small
Bank Holding Company Policy Statement (Regulation Y, Appendix C)
(Policy Statement) and an exemption from the Board's consolidated risk-
based and leverage capital adequacy guidelines for BHCs (Regulation Y,
Appendices A and D) (Capital Guidelines). The Board is adopting this
final rule to address the effects of inflation, industry consolidation,
and normal asset growth of BHCs since the Board introduced the Policy
Statement in 1980. The final rule increases the asset size threshold
from $150 million to $500 million in consolidated assets for
determining whether a BHC may qualify for the Policy Statement and an
exemption from the Capital Guidelines; modifies the qualitative
criteria used in determining whether a BHC that is under the asset size
threshold
[[Page 9898]]
nevertheless would not qualify for the Policy Statement or the
exemption from the Capital Guidelines; and clarifies the treatment
under the Policy Statement of subordinated debt associated with trust
preferred securities.
DATES: This final rule is effective March 30, 2006.
FOR FURTHER INFORMATION CONTACT: Barbara Bouchard, Deputy Associate
Director (202/452-3072 or barbara.bouchard@frb.gov), Mary Frances
Monroe, Manager (202/452-5231 or mary.f.monroe@frb.gov), William
Tiernay, Supervisory Financial Analyst (202/872-7579 or
william.h.tiernay@frb.gov), Supervisory and Risk Policy; Robert Maahs,
Manager, Regulatory Reports (202/872-4935 or robert.maahs@frb.gov); or
Robert Brooks, Supervisory Financial Analyst (202/452-3103 or
robert.brooks@frb.gov), Applications, Division of Banking Supervision
and Regulation; or Mark Van Der Weide, Senior Counsel (202/452-2263 or
mark.vanderweide@frb.gov), Legal Division. For the hearing impaired
only, Telecommunication Device for the Deaf (TDD), contact 202/263-
4869.
SUPPLEMENTARY INFORMATION:
I. Background
The Board issued the Policy Statement in 1980 to facilitate the
transfer of ownership of small community-based banks in a manner that
is consistent with bank safety and soundness. The Board generally has
discouraged the use of debt by BHCs to finance the acquisition of banks
or other companies because high levels of debt at a BHC can impair the
ability of the BHC to serve as a source of strength to its subsidiary
banks. The Board has recognized, however, that the transfer of
ownership of small banks often requires the use of acquisition debt.
Accordingly, the Board adopted the Policy Statement to permit the
formation and expansion of small BHCs with debt levels that are higher
than what would be permitted for larger BHCs. The Policy Statement
contains several conditions and restrictions that are designed to
ensure that small BHCs that operate with the higher levels of debt
permitted by the Policy Statement do not present an undue risk to the
safety and soundness of their subsidiary banks.
Currently, the Policy Statement applies to BHCs with pro forma
consolidated assets of less than $150 million that (i) are not engaged
in any nonbanking activities involving significant leverage; (ii) are
not engaged in any significant off-balance sheet activities; and (iii)
do not have a significant amount of outstanding debt that is held by
the general public (``qualifying small BHCs''). Under the Policy
Statement, qualifying small BHCs may use debt to finance up to 75
percent of the purchase price of an acquisition (that is, they may have
a debt-to-equity ratio of up to 3:1), but are subject to a number of
ongoing requirements. The principal ongoing requirements are that a
qualifying small BHC (i) reduce its parent company debt in such a
manner that all debt is retired within 25 years of being incurred; (ii)
reduce its debt-to-equity ratio to .30:1 or less within 12 years of the
debt being incurred; (iii) ensure that each of its subsidiary insured
depository institutions is well capitalized; and (iv) refrain from
paying dividends until such time as it reduces its debt-to-equity ratio
to 1.0:1 or less. The Policy Statement also specifically provides that
a qualifying small BHC may not use the expedited applications
procedures or obtain a waiver of the stock redemption filing
requirements applicable to BHCs under the Board's Regulation Y (12 CFR
225.4(b), 225.14, and 225.23) unless the BHC has a pro forma debt-to-
equity ratio of 1.0:1 or less.
The Board adopted the risk-based capital guidelines in 1989 to
assist in the assessment of the capital adequacy of BHCs. The risk-
based capital guidelines establish for BHCs minimum ratios of tier 1
capital and total capital to risk-weighted assets. One of the Board's
principal objectives in adopting the risk-based capital guidelines was
to make regulatory capital requirements more sensitive to differences
in risk profiles among banking organizations. Supplemental to the risk-
based capital guidelines, the Board in 1991 adopted the tier 1 leverage
measure, a minimum ratio of tier 1 capital to total average assets, to
further assist in the assessment of the capital adequacy of BHCs with
the principal objective of placing a constraint on the maximum degree
to which a banking organization can leverage its equity capital base.
Because qualifying small BHCs may, consistent with the Policy
Statement, operate at a level of leverage that generally is
inconsistent with the Capital Guidelines, the Capital Guidelines
provide an exemption for qualifying small BHCs.
On September 8, 2005, the Board requested comment on a proposed
rule that would raise, to $500 million, the asset size threshold for
determining whether a small BHC would be subject to the Policy
Statement and exempt from the Capital Guidelines (70 FR 53320,
September 8, 2005). The Board also proposed several modifications to
the criteria under which a BHC that is under the asset size threshold
would be ineligible for application of the Policy Statement and would
be subject to the Capital Guidelines. The proposed rule also clarified
that subordinated debt associated with issuances of trust preferred
securities generally would be considered debt for most purposes under
the Policy Statement, but provided a transition period for certain
currently outstanding subordinated debt associated with these
securities.
II. Summary of Comments and Final Rule
The Board received twenty-nine comments on the proposed rule.
Commenters included financial institutions, industry associations, and
individuals. All commenters generally supported the proposed increase
in the asset threshold for determining whether a BHC would qualify for
the Policy Statement and an exemption from the Capital Guidelines;
however, some commenters urged the Board to increase the asset
threshold to $1 billion. Some commenters also recommended that the
Board create an indexing mechanism under which the threshold would be
raised automatically over time to reflect some measure of the rate of
inflation. Some commenters also raised questions about or recommended
changes to the proposed qualification criteria under which small BHCs
would fail to qualify for the application of the Policy Statement and
would be subject to the Capital Guidelines. Finally, a number of
commenters recommended changes to the proposed criteria for exempting
subordinated debt associated with trust preferred securities during the
transition period and extending the transition period. The comments
received on the proposed rule are discussed in greater detail below.
New Asset Threshold of $500 Million
As noted above, commenters generally supported the Board's proposal
to raise the asset threshold under the Policy Statement from $150
million to $500 million. Six commenters, however, expressed the view
that the proposed increase in the asset threshold from $150 million to
$500 million would be inadequate and asserted that the threshold should
be increased to $1 billion. In support of their view, these commenters
generally argued that, until a BHC reaches the $1 billion asset level,
it does not have the necessary access to the equity markets that would
enable it to finance an acquisition with a lower proportion of debt-to-
equity.
[[Page 9899]]
After carefully considering the comments received in light of the
Board's supervisory experience and the purposes of the Policy Statement
and Capital Guidelines, the Board has determined to raise the asset
threshold to $500 million in consolidated assets as proposed. The Board
is concerned that a further expansion at this time of the definition of
qualifying small BHCs beyond $500 million could adversely impact bank
safety and soundness and impair the Board's ability to monitor the
financial condition of BHCs. The existence of the Policy Statement and
the exemption from the Capital Guidelines for qualifying small BHCs are
major departures from the Board's general policy of limiting BHC
leverage and reflect a careful balance of the special difficulties
small banks may face in the transfer of ownership with the prudential
and supervisory concerns of the Board. Consolidated capital standards
are a key aspect of the Board's supervisory program and play an
important role in helping ensure that a BHC--whether large or small--is
able to serve as a source of strength for its subsidiary depository
institutions. For this reason, the Board believes that exemptions from
these standards (and related reporting obligations) should be narrowly
tailored and granted only when clearly warranted. This is particularly
true for small BHCs because the Board's risk-focused supervision
program for smaller BHCs (whether or not qualifying small BHCs for the
purposes of the Policy Statement) relies heavily on off-site monitoring
rather than on-site examiner reviews.
Moreover, raising the asset threshold to $500 million as set forth
in this final rule will allow approximately 85 percent of all BHCs to
qualify for the Policy Statement, a substantial increase from the 55
percent that were eligible to qualify under the $150 million threshold.
Finally, since the Policy Statement was originally adopted, the
legal framework governing the ownership and branching of banking
organizations has changed dramatically, increasing market liquidity.
The Board's supervisory experience indicates that many banks with
assets in excess of $500 million are attractive for acquisition by
organizations that have the means to make acquisitions without the use
of excessive debt.
The Board expects to review at least once every five years the
asset threshold in the final rule to determine whether this threshold
should be further adjusted. In considering whether to modify the asset
threshold, the Board will consider several factors which may include,
among other things, the rate of growth of aggregate bank assets, the
overall financial condition of the banking industry, and structural
changes in the role of banking organizations in the overall economy.
The Board believes that this periodic review will allow the Board to
consider the full range of factors that may be relevant to identifying
the level below which a BHC should be subject to the Policy Statement
and exempt from the Capital Guidelines. In this regard, the Board
believes that measures of price inflation are not necessarily
appropriate determinants of what constitutes a small BHC for capital
and prudential purposes.
Other Criteria for Identifying a Qualifying Small BHC
The Board also proposed to modify the qualitative criteria for
determining whether a BHC that otherwise meets the asset threshold
nevertheless should not qualify for application of the Policy Statement
and exemption from the Capital Guidelines to reflect changes to the
banking industry over the last two decades, including the nature of the
operations of many smaller BHCs. As proposed, BHCs with less than $500
million in consolidated assets would not qualify for the Policy
Statement and would be subject to the Capital Guidelines if the BHC (i)
is engaged in significant nonbanking activities either directly or
through a nonbank subsidiary, (ii) conducts significant off-balance
sheet activities, including securitizations or managing or
administering assets for third parties, either directly or through a
nonbank subsidiary, or (iii) has a material amount of debt or equity
securities (other than trust preferred securities) outstanding that are
registered with the Securities and Exchange Commission (SEC).
A few commenters indicated that more clarity would be helpful in
quantifying ``significant'' nonbanking activities, ``significant'' off-
balance sheet activities, or ``material'' amounts of debt and equity
securities. For example, one commenter suggested the use of more
absolute quantitative thresholds or limits, such as total nonbank
assets, off-balance sheet items, or debt or equity securities as a
percentage of Tier 1 capital. Commenters also suggested that the term
``nonbanking activities'' be more specifically defined and exclude
nonbanking activities that have been found to be ``closely related to
banking'' under the Board's Regulation Y (See 12 CFR 225.28).
Some commenters also requested that the Federal Reserve allow a
small BHC to operate under the Policy Statement if the BHC conducts
significant nonbanking activities but the activities are found, based
on supervisory review, to not pose material additional operational
risks.\1\ Two commenters noted that SEC registration can be triggered
by increases in an institution's shareholder base through inheritance
or other inter-generational transfers and, on this basis, argued that
the criterion related to SEC-registered debt or equity should be
deleted.
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\1\ Two commenters urged that any final rule clearly provide
that a small BHC is not prohibited from operating under the Policy
Statement if it conducts trust activities through trust departments
of its subsidiary bank or through a nonbank subsidiary of that bank.
The term ``nonbank subsidiary'' as used in the Policy Statement
refers to a subsidiary of a BHC other than a bank or a subsidiary of
a bank.
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After carefully considering the issues raised by commenters, the
Board has adopted the changes, as proposed. The Board believes that the
changes best reflect the Board's prudential and supervisory interests
in ensuring that BHCs remain well capitalized, subject to appropriate
financial reporting requirements to facilitate the supervisory process,
and able to serve as a source of strength to their subsidiary banks.
The Board also believes these changes are necessary or appropriate to
reflect changes in the banking industry over the last two decades,
including the nature of the operations of many small BHCs. The
enactment of the Gramm-Leach-Bliley Act in 1999 expanded significantly
the range of nonbanking activities in which BHCs may engage, both
directly and through nonbank subsidiaries of the holding company. Such
activities may result in a higher level of operational, legal or
reputational risk to the banking organization than balance sheet
measures would indicate and, in some cases, may contribute
significantly to an organization's overall financial performance.\2\
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\2\ The examples provided in the proposed rule--securitizations
and managing or administering assets for third parties--simply
highlight two off-balance sheet activities that may involve
substantial risk. These examples are not intended to be exclusive
and other activities may well present similar concerns.
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The revision of the criterion to exclude from the Policy Statement
any BHC that has outstanding a material amount of SEC-registered debt
or equity securities reflects the fact that SEC registrants typically
exhibit a degree of complexity of operations and access to multiple
funding sources that warrants excluding them from the Policy Statement
and subjecting them to the Capital Guidelines. Moreover, the
application of consolidated reporting requirements to these BHCs should
not
[[Page 9900]]
impose significant additional burden, as they are required to have
consolidated financial statements for SEC reporting purposes. What
constitutes a ``significant'' amount of nonbanking activities or a
``material'' amount of SEC-registered debt or equity for a particular
BHC depends on the size, activities and condition of the relevant BHC.
In the Board's view, differing levels of risk in varying business lines
and practices among institutions precludes the use of fixed measurable
parameters of significance or materiality across all institutions. For
this reason, the rule provides the Federal Reserve with supervisory
flexibility in determining, on a case-by-case basis, the significance
or materiality of activities or securities outstanding such that the
BHC should be excluded from the Policy Statement and subject to the
Capital Guidelines. The Board notes that the current Policy Statement
also uses a ``significant'' standard and that application of this
standard through the supervisory process has not created substantial
difficulty over the years. As a general matter, the Board believes that
relatively few small BHCs are likely to be excluded from the Policy
Statement and become subject to the Capital Guidelines due to
qualitative criteria included in the final rule.
The Board has amended the Policy Statement and the Capital
Guidelines to make explicit the Federal Reserve's existing authority to
require on a case-by-case basis that a qualifying small BHC meet
consolidated capital requirements when such action is warranted for
supervisory reasons, as well as the ability of a qualifying small BHC
to voluntarily elect to comply with the Capital Guidelines.
Treatment of Subordinated Debt Associated With Trust Preferred
Securities
Currently, for purposes of the Policy Statement, subordinated debt
on the parent company's balance sheet that is issued in connection with
trust preferred securities is not treated as debt; however, the cash-
flow impact of such subordinated debt is included in the Board's review
of the financial condition of a BHC.\3\ The proposed rule provided that
subordinated debt associated with trust preferred securities would be
considered debt for most purposes under the Policy Statement. In
particular, such subordinated debt would be included as debt in
determining whether (i) a qualifying small BHC's acquisition debt is 75
percent or less of the purchase price; or (ii) a qualifying small BHC's
debt-to-equity ratio is greater than 1.0:1 (the ratio above which a
qualifying small BHC is subject to dividend restrictions and is not
permitted to use the expedited applications processing procedures or
obtain a waiver of stock redemption filing requirements under
Regulation Y).\4\ However, subordinated debt associated with trust
preferred securities would not be included as debt in determining
compliance with the 12-year debt reduction and 25-year debt retirement
requirements of the Policy Statement.
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\3\ Trust preferred securities are undated cumulative preferred
securities issued out of a special purpose entity, usually in the
form of a trust, in which a BHC owns all of the common securities.
The special purpose entity's sole asset is a deeply subordinated
note issued by the BHC that typically has a fixed maturity of 30
years.
\4\ The Board also would consider subordinated debt associated
with the issuance of trust preferred securities as covered by any
supervisory debt commitments with the Federal Reserve.
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In order to provide for more equitable treatment between qualifying
small BHCs and larger BHCs that are subject to the Capital
Guidelines,\5\ the proposed rule provided that, for purposes of
determining compliance with Policy Statement requirements, a qualifying
small BHC could exclude from debt an amount of subordinated debt
associated with trust preferred securities equaling up to 25 percent of
the small BHC's stockholders' equity (as defined in the Policy
Statement) less parent company goodwill.\6\ In addition, in order to
give qualifying small BHCs sufficient time to conform their debt
structures, the Board proposed to provide for a five-year transition
period during which all subordinated debt associated with trust
preferred securities issued on or prior to the publication date of the
proposed rule (September 8, 2005) would not be considered debt under
the Policy Statement. However, the proposed rule also provided that
this temporary non-debt status would terminate if the qualifying small
BHC issued additional subordinated debt associated with a new issuance
of trust preferred securities after the date of the proposed rule.
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\5\ A BHC that is subject to the Capital Guidelines generally
may count an amount of qualifying trust preferred securities as tier
1 capital up to 25 percent of the sum of the BHC's core capital
elements. 12 CFR part 225, appendix A, Sec. II.A.1.b.
\6\ For example, assume the parent company only financial
statements of a qualifying small BHC include subordinated debt
associated with trust preferred securities of $200, other debt of
$75, stockholders' equity of $300, and goodwill of $100. The
numerator of the debt to equity ratio of the company for purposes of
the Policy Statement would equal $225 or ($75 + ($200 - (($300 -
$100) x .25))). The denominator of the debt to equity ratio would be
$300.
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Overall, commenters did not object to the proposed treatment of
subordinated debt under the Policy Statement. However, several
commenters recommended changes to the transition period and related
conditions for existing subordinated debt associated with trust
preferred securities. For example, one commenter recommended that
existing subordinated debt of this type should be permanently
grandfathered, while another recommended extending the transition
period to ten years so that small BHCs would have more time to conform
their debt structures. Several others recommended that the transition
period be amended to include debt outstanding on the date of issuance
of the final rule (or even up to 90 days after its issuance) so that
companies would have time to restructure or complete issuances pending
on the date of the proposed rule without being penalized under the rule
change. Commenters also recommended that small BHCs be allowed to
refinance existing trust preferred securities during the transition
period to lower their interest costs without losing the exempted status
of any associated subordinated debt.
Several hundred BHCs with assets under $500 million have issued
trust preferred securities to date. The Board believes that permanently
grandfathering existing subordinated debt associated with trust
preferred securities would provide these small BHCs with an unfair
competitive advantage and would not be prudent for supervisory
purposes. The Board continues to believe that five years is sufficient
time for small BHCs to conform their existing debt structures. Such a
transition period generally would be consistent with the five-year
transition period afforded to larger BHCs to meet the Board's risk-
based capital guidelines with respect to trust preferred securities.\7\
However, in order to provide for equitable treatment of trust preferred
issuances pending on the date of the proposed rule, the Board has
decided to provide for a five-year transition period during which
subordinated debt associated with trust preferred securities issued on
or prior to December 31, 2005, would not be considered debt under the
Policy Statement. Small BHCs may also refinance existing issuances of
trust preferred securities without losing the exempt status of the
related subordinated debt under the Policy Statement during the
transition period
[[Page 9901]]
as long as the amount of the subordinated debt does not increase.
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\7\ See 12 CFR part 225, appendix A, Sec. II.A.1.b.ii.
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Small BHC Regulatory Reporting
To assist the Federal Reserve in monitoring the financial health
and operations of BHCs, the Board requires all BHCs to file certain
regulatory reports with the Federal Reserve. One of the most important
of the Federal Reserve reporting requirements is the Financial
Statements for Bank Holding Companies (FR Y-9 series of reports; OMB
No. 7100-0128). Currently, BHCs that have consolidated assets of less
than $150 million (and that also meet qualitative criteria similar to
those in the Policy Statement) generally submit limited summary parent-
only financial data semiannually on the FR Y-9SP. Currently, BHCs with
consolidated assets of $150 million or more must submit parent only
financial data on the FR Y-9LP and consolidated financial data on the
FR Y-9C quarterly.
The Federal Reserve has issued a notice whereby it has proposed to
revise the reporting requirements for the FR Y-9 series of reports for
2006 (2006 proposal).\8\ If these reporting revisions are adopted, they
would increase the FR Y-9SP reporting threshold from $150 million to
$500 million in consolidated assets and conform the FR Y-9SP reporting
exception criteria to the proposed qualitative exception criteria under
the Policy Statement and the Capital Guidelines. Under the 2006
proposal, BHCs that meet the criteria for filing the FR Y-9SP would be
exempt from filing the FR Y-9LP and FR Y-9C. Conversely, BHCs subject
to the Capital Guidelines, including small BHCs that do not qualify
under the revised Policy Statement and qualifying small BHCs that
voluntarily elect to comply with the Capital Guidelines, would file the
FR Y-9LP and the FR Y-9C on a quarterly basis.
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\8\ 70 FR 66423, November 2, 2005. Comments on this proposal
were due by January 3, 2006.
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Conforming Amendments
A number of documentation, filing, and other provisions in
Regulation Y are triggered by the consolidated asset threshold
established by the Board's Small Bank Holding Company Policy Statement.
These provisions include, for example, the notice procedures for one-
bank holding company formations in 12 CFR 225.17(a)(6). The Board has
made technical and conforming amendments to these provisions to provide
that qualifying small BHCs may take advantage of the streamlined
informational and notice requirements embodied in these rules. These
technical and conforming amendments are a logical outgrowth of the
revisions to the Policy Statement and the Capital Guidelines issued for
public comment and, moreover, will provide relief to most bank holding
companies with consolidated total assets of between $150 million and
$500 million.
Regulatory Flexibility Act Analysis
Pursuant to section 605(b) of the Regulatory Flexibility Act (5
U.S.C. 601 et seq.), the Board has determined the rule would not have a
significant impact on a substantial number of small entities, as
defined in the Regulatory Flexibility Act. In this regard, the rule
would reduce regulatory burden by exempting most BHCs with total
consolidated assets of between $150 million and $500 million from the
application of the Board's Capital Guidelines. Although the rule will
treat subordinated debt associated with trust preferred securities as
debt for most purposes under the Policy Statement, the final rule
provides a substantial five-year transition period for subordinated
debt associated with trust preferred securities issued on or prior to
December 31, 2005.
Paperwork Reduction Act
In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C.
3506; 5 CFR 1320 Appendix A.1.), the Board has reviewed this rulemaking
under the authority delegated to the Board by the Office of Management
and Budget. The Board has determined that the rule does not involve a
collection of information pursuant to the provisions of the Paperwork
Reduction Act of 1995 (44 U.S.C. 3501 et seq.).
Plain Language
Section 722 of the Gramm-Leach-Bliley Act requires the Federal
banking agencies to use ``plain language'' in all proposed and final
rules published after January 1, 2000. Accordingly, the Board has
sought to present the rule in a simple and straightforward manner.
List of Subjects in 12 CFR Part 225
Administrative practice and procedure, Banks, banking, Federal
Reserve System, Holding companies, Reporting and recordkeeping
requirements, Securities.
Federal Reserve System
12 CFR Chapter II
Authority and Issuance
0
For the reasons set forth in the preamble, part 225 of chapter II of
title 12 of the Code of Federal Regulations is amended as set forth
below:
PART 225--BANK HOLDING COMPANIES AND CHANGE IN BANK CONTROL
(REGULATION Y)
0
1. The authority citation for part 225 continues to read as follows:
Authority: 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, 3907,
and 3909; 15 U.S.C. 6801 and 6805.
0
2. In Sec. 225.2, footnote 2 is revised to read as follows:
Sec. 225.2 Definitions.
* * * * *
\2\ For purposes of this subpart and subparts B and C of this part,
a bank holding company with consolidated assets of less than $500
million that is subject to the Small Bank Holding Company Policy
Statement in Appendix C of this part will be deemed to be ``well-
capitalized'' if the bank holding company meets the requirements for
expedited/waived processing in Appendix C.
* * * * *
0
3. Section 225.4(b)(2)(iii) is revised as follows:
Sec. 225.4 Corporate practices.
* * * * *
(b) * * *
(2) * * *
(iii) (A) If the bank holding company has consolidated assets of
$500 million or more, consolidated pro forma risk-based capital and
leverage ratio calculations for the bank holding company as of the most
recent quarter, and, if the redemption is to be debt funded, a parent-
only pro forma balance sheet as of the most recent quarter; or
(B) If the bank holding company has consolidated assets of less
than $500 million, a pro forma parent-only balance sheet as of the most
recent quarter, and, if the redemption is to be debt funded, one-year
income statement and cash flow projections.
* * * * *
0
4. Section 225.14(a)(1)(v) is revised as follows:
Sec. 225.14 Expedited action for certain bank acquisitions by well-
run bank holding companies.
(a) * * *
(1) * * *
(v)(A) If the bank holding company has consolidated assets of $500
million or more, an abbreviated consolidated pro forma balance sheet as
of the most recent quarter showing credit and debit adjustments that
reflect the proposed transaction, consolidated pro forma risk-based
capital ratios for the acquiring bank holding company as of the most
recent quarter, and a
[[Page 9902]]
description of the purchase price and the terms and sources of funding
for the transaction;
(B) If the bank holding company has consolidated assets of less
than $500 million, a pro forma parent-only balance sheet as of the most
recent quarter showing credit and debit adjustments that reflect the
proposed transaction, and a description of the purchase price, the
terms and sources of funding for the transaction, and the sources and
schedule for retiring any debt incurred in the transaction;
* * * * *
0
5. In Sec. 225.17, footnote 5 is revised to read as follows:
Sec. 225.17 Notice procedure for one-bank holding company formations.
* * * * *
\5\ For a banking organization with consolidated assets, on a pro
forma basis, of less than $500 million (other than a banking
organization that will control a de novo bank), this requirement is
satisfied if the proposal complies with the Board's Small Bank Holding
Company Policy Statement (Appendix C of this part).
* * * * *
0
6. Section 225.23(a)(1)(iii)(A) and (B) are revised as follows:
Sec. 225.23 Expedited action for certain nonbanking proposals by
well-run bank holding companies.
(a) * * *
(1) * * *
(iii) * * *
(A) If the bank holding company has consolidated assets of $500
million or more, an abbreviated consolidated pro forma balance sheet
for the acquiring bank holding company as of the most recent quarter
showing credit and debit adjustments that reflect the proposed
transaction, consolidated pro forma risk-based capital ratios for the
acquiring bank holding company as of the most recent quarter, a
description of the purchase price and the terms and sources of funding
for the transaction, and the total revenue and net income of the
company to be acquired;
(B) If the bank holding company has consolidated assets of less
than $500 million, a pro forma parent-only balance sheet as of the most
recent quarter showing credit and debit adjustments that reflect the
proposed transaction, a description of the purchase price and the terms
and sources of funding for the transaction and the sources and schedule
for retiring any debt incurred in the transaction, and the total
assets, off-balance sheet items, revenue and net income of the company
to be acquired;
* * * * *
0
7. Appendix A to part 225 is amended as follows:
0
a. In section I, the fifth undesignated paragraph is revised.
0
b. In section I, footnote 4 is removed and reserved.
0
c. In section IV.A, footnote 64 is revised.
Appendix A to Part 225--Capital Adequacy Guidelines for Bank Holding
Companies: Risk-Based Measure
I. Overview
* * * * *
The risk-based guidelines apply on a consolidated basis to any
bank holding company with consolidated assets of $500 million or
more. The risk-based guidelines also apply on a consolidated basis
to any bank holding company with consolidated assets of less than
$500 million if the holding company (i) is engaged in significant
nonbanking activities either directly or through a nonbank
subsidiary; (ii) conducts significant off-balance sheet activities
(including securitization and asset management or administration)
either directly or through a nonbank subsidiary; or (iii) has a
material amount of debt or equity securities outstanding (other than
trust preferred securities) that are registered with the Securities
and Exchange Commission (SEC). The Federal Reserve may apply the
risk-based guidelines at its discretion to any bank holding company,
regardless of asset size, if such action is warranted for
supervisory purposes.\4\
* * * * *
\4\ [Reserved].
* * * * *
IV. Minimum Supervisory Ratios and Standards
* * * * *
A. Minimum Risk-Based Ratio After Transition Period
* * * * *
\64\ As noted in section I, bank holding companies with less
than $500 million in consolidated assets would generally be exempt
from the calculation and analysis of risk-based ratios on a
consolidated holding company basis, subject to certain terms and
conditions.
* * * * *
0
8. Appendix C to part 225 is amended as follows:
0
a. In section 1, the first undesignated paragraph is revised.
0
b. In section 1, footnote 1 is removed and reserved.
0
c. In section 2.A., a new paragraph is added after the first paragraph
in footnote 3.
Appendix C to Part 225--Small Bank Holding Company Policy Statement
* * * * *
1. * * *
This policy statement applies only to bank holding companies
with pro forma consolidated assets of less than $500 million 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\
* * * * *
\1\ [Reserved].
* * * * *
2. * * *
A. * * *
\3\ * * *
Subordinated debt associated with trust preferred securities
generally would be treated as debt for purposes of paragraphs 2.C.,
3.A., 4.A.i, and 4.B.i. of this policy statement. A bank holding
company, however, may exclude from debt an amount of subordinated
debt associated with trust preferred securities up to 25 percent of
the holding company's equity (as defined below) less goodwill on the
parent company's balance sheet in determining compliance with the
requirements of such paragraphs of the policy statement. In
addition, a bank holding company subject to this Policy Statement
that has not issued subordinated debt associated with a new issuance
of trust preferred securities after December 31, 2005 may exclude
from debt any subordinated debt associated with trust preferred
securities until December 31, 2010. Bank holding companies subject
to this Policy Statement may also exclude from debt until December
31, 2010, any subordinated debt associated with refinanced issuances
of trust preferred securities originally issued on or prior to
December 31, 2005, provided that the refinancing does not increase
the bank holding company's outstanding amount of subordinated debt.
Subordinated debt associated with trust preferred securities will
not be included as debt in determining compliance with any other
requirements of this policy statement.
* * * * *
0
9. Appendix D to part 225 is amended as follows:
0
a. In section I., paragraph b. is revised.
0
b. In section I.b., footnote 2 is removed and reserved.
Appendix D to Part 225--Capital Adequacy Guidelines for Bank Holding
Companies: Tier 1 Leverage Measure
I. Overview
* * * * *
b. The tier 1 leverage guidelines apply on a consolidated basis
to any bank holding company with consolidated assets of $500 million
or more. The tier 1 leverage guidelines also apply on a consolidated
basis to any bank holding company with
[[Page 9903]]
consolidated assets of less than $500 million if the holding company
(i) is engaged in significant nonbanking activities either directly
or through a nonbank subsidiary; (ii) conducts significant off-
balance sheet activities (including securitization and asset
management or administration) either directly or through a nonbank
subsidiary; or (iii) has a material amount of debt or equity
securities outstanding (other than trust preferred securities) that
are registered with the Securities and Exchange Commission. The
Federal Reserve may apply the tier 1 leverage guidelines at its
discretion to any bank holding company, regardless of asset size, if
such action is warranted for supervisory purposes.\2\
* * * * *
\2\ [Reserved].
* * * * *
By order of the Board of Governors of the Federal Reserve
System, February 22, 2006.
Jennifer J. Johnson,
Secretary of the Board.
[FR Doc. 06-1837 Filed 2-27-06; 8:45 am]
BILLING CODE 6210-02-P