[Federal Register Volume 76, Number 29 (Friday, February 11, 2011)]
[Proposed Rules]
[Pages 7731-7740]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-2978]
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FEDERAL RESERVE SYSTEM
12 CFR Part 225
[Regulation Y; Docket No. R-1405]
RIN 7100-AD64
Definitions of ``Predominantly Engaged in Financial Activities''
and ``Significant'' Nonbank Financial Company and Bank Holding Company
AGENCY: Board of Governors of the Federal Reserve System (``Board'').
ACTION: Notice of proposed rulemaking and request for comment.
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SUMMARY: The Board is publishing for comment proposed amendments to
Regulation Y that establish the criteria for determining whether a
company is ``predominantly engaged in financial activities'' and define
the terms ``significant nonbank financial company'' and ``significant
bank holding company'' for purposes of Title I of the Dodd-Frank Wall
Street Reform and Consumer Protection Act of 2010 (the ``Dodd-Frank
Act'' or ``Act''). These terms are relevant to various provisions of
Title I of the Dodd-Frank Act, including section 113, which authorizes
the Financial Stability Oversight Council (``Council'') to designate a
nonbank financial company for supervision by the Board if the Council
determines that the company could pose a threat to the financial
stability of the United States. The Council recently requested comment
on a proposed rule to implement section 113 of the Dodd-Frank Act.
DATES: Comments: Comments should be received on or before March 30,
2011.
ADDRESSES: You may submit comments, identified by Docket No. R-1405 and
[[Page 7732]]
RIN No. 7100-AD64, by any of the following methods:
Agency Web Site: http://www.federalreserve.gov. Follow the
instructions for submitting comments at http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm.
Federal eRulemaking Portal: http://www.regulations.gov. Follow the
instructions for submitting comments.
E-mail: [email protected]. Include docket number in
the subject line of the message.
Facsimile: (202) 452-3819 or (202) 452-3102.
Mail: Jennifer J. Johnson, Secretary, Board of Governors of the
Federal Reserve System, 20th Street and Constitution Avenue, NW.,
Washington, DC 20551.
All public comments are available from the Board's Web site at
http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm as
submitted, unless modified for technical reasons. Accordingly, your
comments will not be edited to remove any identifying or contact
information. Public comments may also be viewed electronically or in
paper form in Room MP-500 of the Board's Martin Building (20th and C
Streets, NW.) between 9 a.m. and 5 p.m. on weekdays.
FOR FURTHER INFORMATION CONTACT: Paige E. Pidano, Senior Attorney,
(202) 452-2803 or Kieran J. Fallon, Associate General Counsel, (202)
452-5270, Legal Division; Margaret Donovan, Supervisory Financial
Analyst, (202) 872-7542, Division of Banking Supervision and
Regulation, Board of Governors of the Federal Reserve System, 20th
Street and Constitution Avenue, NW., Washington, DC 20551. Users of
Telecommunication Device for Deaf (TDD) only, call (202) 263-4869.
SUPPLEMENTARY INFORMATION:
I. Background
The Dodd-Frank Act, enacted on July 21, 2010, establishes the
Council, which is composed of ten voting members and five non-voting
members.\1\ Among other authorities and duties, the Council may require
that a ``nonbank financial company'' become subject to consolidated,
prudential supervision by the Board if the Council determines that
material financial distress at the company, or the nature, scope, size,
scale, concentration, interconnectedness, or mix of the company's
activities, could pose a threat to the financial stability of the
United States.\2\ Section 113 of the Dodd-Frank Act specifies a number
of criteria that the Council must consider in determining whether to
designate a nonbank financial company for supervision by the Board.
These factors include the size and leverage of the company, as well as
the extent and nature of the company's transactions and relationships
with other ``significant nonbank financial companies'' and
``significant bank holding companies.'' \3\ Nonbank financial companies
that are designated by the Council under section 113 of the Dodd-Frank
Act are referred to as ``nonbank financial companies supervised by the
Board.'' \4\
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\1\ See 12 U.S.C. 5321. The ten voting members of the Council
are: The Secretary of the Treasury (who is also Chairperson of the
Council); the Chairman of the Board; the heads of the Consumer
Financial Protection Bureau, the Office of the Comptroller of the
Currency (``OCC''), the Securities and Exchange Commission
(``SEC''), the Federal Deposit Insurance Corporation (``FDIC''), the
Commodity Futures Trading Commission (``CFTC''), the Federal Housing
Finance Agency (``FHFA''), and the National Credit Union
Administration (``NCUA''); and an independent member with insurance
expertise appointed by the President and confirmed by the Senate.
The five non-voting members of the Council are: The heads of the
newly established Office of Financial Research and the Federal
Insurance Office, and a State insurance commissioner, banking
supervisor, and securities commissioner.
\2\ See 12 U.S.C. 5323. The Council's decision requires the vote
of at least two-thirds of the voting members of the Council then
serving, including the affirmative vote of the Chairperson of the
Council (the Secretary of the Treasury).
\3\ See 12 U.S.C. 5323(a)(2)(C) and (b)(2)(C).
\4\ See 12 U.S.C. 5323 et seq.
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The authority of the Council to require that a nonbank financial
company become subject to consolidated prudential supervision by the
Board is an important component of the legislative and regulatory
changes designed to address gaps and weaknesses in the financial
regulatory system that became evident during the financial crisis.
These gaps allowed certain large, interconnected financial firms whose
failure could pose substantial risks to the financial stability of the
United States to avoid the type of prudential, consolidated supervision
applicable to bank holding companies.
Besides being used in section 113 of the Dodd-Frank Act, the terms
``nonbank financial company'' and ``significant'' nonbank financial
company and bank holding company also are used in several other
provisions of Title I of the Act. For example, under section 112(d)(3)
of the Dodd-Frank Act (12 U.S.C 5322(d)(3)), the Council, acting
through the Office of Financial Research (``OFR''), may require a
nonbank financial company to submit reports to the OFR and the Council
to assist the Council in assessing the extent to which a financial
activity or financial market in which the nonbank financial company
participates, or the nonbank financial company itself, poses a threat
to the financial stability of the United States. In addition, the Dodd-
Frank Act requires nonbank financial companies supervised by the Board
and bank holding companies with total consolidated assets of $50
billion or more to submit reports to the Board, the Council, and the
FDIC on the nature and extent of (i) the company's credit exposure to
other significant nonbank financial companies and significant bank
holding companies; and (ii) the credit exposure of such significant
entities to the company.\5\
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\5\ See 12 U.S.C. 5365(d)(2).
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Title I of the Dodd-Frank Act defines a ``nonbank financial
company'' to include both a U.S. nonbank financial company and a
foreign nonbank financial company. The statute, in turn, defines a U.S.
nonbank financial company as a company (other than a bank holding
company and certain other specified types of entities) \6\ that is (i)
incorporated or organized under the laws of the United States or any
State; and (ii) predominantly engaged in financial activities. A
foreign nonbank financial company is defined as a company (other than a
bank holding company or foreign bank or company that is, or is treated
as, a bank holding company) that is (i) incorporated or organized
outside the United States; and (ii) predominantly engaged in financial
activities.\7\ The proposed rule incorporates these definitions.\8\
Thus, the term ``nonbank financial company''
[[Page 7733]]
applies to financial firms that are not already supervised and
regulated by the Federal Reserve System as bank holding companies.
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\6\ See 12 U.S.C. 5311(a)(4)(B). Besides bank holding companies,
the statute specifically provides that the term ``U.S. nonbank
financial company'' does not include (i) a Farm Credit System
institution chartered and subject to the Farm Credit Act of 1971 (12
U.S.C. 2001 et seq.), (ii) a national securities exchange (or parent
thereof), clearing agency (or parent thereof, unless the parent is a
bank holding company), security-based swap execution facility, or
security-based swap data repository that in each case is registered
with the SEC, or (iii) a board of trade designated as a contract
market (or parent thereof), or a derivatives clearing organization
(or parent thereof, unless the parent is a bank holding company),
swap execution facility or a swap data repository that in each case
is registered with the CFTC. See 12 U.S.C. 5311(a)(4)(B). Consistent
with the definition of a bank holding company in section 102(a)(1)
of the Dodd-Frank Act (12 U.S.C. 5311(a)(1)), a U.S. subsidiary or
office of a foreign bank or company that is treated as a bank
holding company for purposes of the Bank Holding Company Act of 1956
(``BHC Act'') by reason of section 8(a) of the International Banking
Act of 1978 (12 U.S.C. 3106(a)) (``IBA'') also is not considered a
U.S. nonbank financial company.
\7\ See id. at Sec. 5311(a)(4)(A). A foreign bank, or foreign
company controlling a foreign bank, is treated as a bank holding
company for purposes of the BHC Act if the foreign bank has a
branch, agency, or commercial lending company subsidiary in the
United States and does not control a U.S. bank.
\8\ See Sec. 225.300 of the Proposed Rule.
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The Act defines financial activities by reference to those
activities that have been determined--by statute, regulation, or
order--to be financial in nature under section 4(k) of the BHC Act (as
amended by the Gramm-Leach-Bliley Act) \9\ and, thus, are permissible
for a financial holding company to conduct.\10\ For purposes of Title I
of the Dodd-Frank Act, a company is considered to be ``predominantly
engaged'' in financial activities if either (i) the annual gross
revenues derived by the company and all of its subsidiaries from
financial activities, as well as from the ownership or control of an
insured depository institution, represent 85 percent or more of the
consolidated annual gross revenues of the company; or (ii) the
consolidated assets of the company and all of its subsidiaries related
to financial activities, as well as related to the ownership or control
of an insured depository institution, represent 85 percent or more of
the consolidated assets of the company.
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\9\ 12 U.S.C. 1843(k).
\10\ See 12 U.S.C. 5311(a)(6). A financial holding company is a
bank holding company that meets certain capital, managerial and
Community Reinvestment Act standards and that has made an effective
election to become a financial holding company. See 12 CFR 225.81
and 225.82. Financial holding companies are permitted to engage in a
wider array of financial activities--including full-scope securities
underwriting and dealing, insurance underwriting and agency
activities, and merchant banking activities--than other bank holding
companies.
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II. Overview of the Proposed Rule
The Dodd-Frank Act requires the Board to issue regulations that
establish the requirements for determining if a company is
``predominantly engaged in financial activities'' for purposes of Title
I of the Act and that define the terms ``significant nonbank financial
company'' and ``significant bank holding company.'' \11\ Accordingly,
the Board is requesting comment on a proposed rule that would establish
these criteria and define these terms.\12\ The Board is requesting
comment on the proposed rule at this time because the proposals are
relevant to the authority of the Council to designate nonbank financial
companies for supervision by the Board under section 113 of the Dodd-
Frank Act. As noted previously, the Council recently requested comment
on a proposed rule to implement the designation standards and process
for nonbank financial companies under section 113.\13\ The Board
believes soliciting comment on the proposed rule at this time should
facilitate public understanding of, and comment on, the Council's
proposal, and allow the Council to consider potential designations of
nonbank financial companies under section 113 promptly after the
Council's rule is finalized.
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\11\ See 12 U.S.C. 5311(a)(7) and (b).
\12\ The Board notes that Title II of the Dodd-Frank Act
includes a separate definition of a ``financial company'' that is
used for purposes of that Title's provisions related to the new
orderly liquidation authority. See 12 U.S.C. 5381(a)(11) and (b) (as
added by section 201 of the Dodd-Frank Act). The FDIC has
responsibility for issuing regulations, in consultation with the
Secretary of the Treasury, that define the term ``financial
company'' for purposes of Title II of the Act. See id. at Sec.
5381(b).
\13\ See 76 FR 4555 (2011).
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In developing the proposed rule, the Board considered the language
and purposes of the relevant statutory provisions. In addition, the
Board consulted with the other voting member agencies of the Council in
developing this proposed rule.
A. Predominantly Engaged in Financial Activities
1. Two-Year Test Based on Consolidated Financial Statements
The proposed rule provides that a company is predominantly engaged
in financial activities if:
The consolidated annual gross financial revenues of the
company in either of its two most recently completed fiscal years
represent 85 percent or more of the company's consolidated annual
gross revenues (as determined in accordance with applicable
accounting standards) in that fiscal year; or
The consolidated total financial assets of the company
as of the end of either of its two most recently completed fiscal
years represent 85 percent or more of the company's consolidated
total assets (as determined in accordance with applicable accounting
standards) as of the end of that fiscal year.\14\
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\14\ See Sec. 225.301(a)(1) and (2) of the Proposed Rule.
The proposed test is based on the relevant company's annual
financial revenue in, or financial assets at the end of, either of its
two most recent fiscal years. This methodology is designed to allow the
Council to effectively fulfill its important responsibilities of
designating (and reviewing existing designations of) those nonbank
financial companies whose failure could pose a threat to the financial
stability of the United States, and to allow the Board to effectively
fulfill its responsibilities for supervising such firms. While the Act
provides that a company's consolidated annual gross revenues and
consolidated assets are to be used in determining whether the company
is predominantly engaged in financial activities, the Act does not
specify over what time period (e.g., one year, two years, etc.) the
annual gross revenues or consolidated assets of a company should be
considered in making this determination.
The two-year test would, for example, allow the Council to
designate a systemically important firm whose financial assets and
revenues traditionally have met or exceeded the required 85 percent
threshold, but that experienced a temporary decline in financial
revenues or assets (such as, for example, due to declining financial
asset prices caused by distress in the financial markets) during its
last fiscal year. Similarly, the two-year test would provide the
Council a period of time to reevaluate--as contemplated by the Dodd-
Frank Act \15\--an existing designation with respect to a systemically
important nonbank financial company should the company's level of
financial revenues or assets fall below the 85 percent threshold at the
end of a single year.
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\15\ See 12 U.S.C. 5223(d).
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At the same time, however, a company would not be considered to be
predominantly engaged in financial activities under the two-year test
set forth in Sec. 225.301(a)(1) or (2) of the proposed rule, and would
not qualify as a nonbank financial company under this test, if the
company's level of financial revenues or assets were below the 85
percent threshold in both of its two most recent fiscal years. Thus,
companies that are and remain substantially engaged in nonfinancial
activities would not be subject to potential designation by the Council
under section 113 of the Dodd-Frank Act or to consolidated supervision
by the Board as a result of such a designation.
The proposed rule defines the ``consolidated annual gross financial
revenues'' of a company as that portion of the company's consolidated
annual gross revenues, as determined in accordance with applicable
accounting standards, that were derived, directly or indirectly, by the
company or any of its subsidiaries from (i) activities that are
financial in nature under section 4(k) of the BHC Act; or (ii) the
ownership, control, or activities of an insured depository
institution.\16\ Similarly, the ``consolidated total financial assets''
of a company is defined as that portion of the company's consolidated
total assets, as determined in accordance with applicable accounting
standards, that are related to (i) activities that are financial in
nature under section 4(k) of
[[Page 7734]]
the BHC Act, or (ii) the ownership, control, or activities of an
insured depository institution.\17\ The Dodd-Frank Act specifically
provides that revenues or assets attributable to an insured depository
institution are to be considered as ``financial'' revenues or assets
for purposes of determining whether a company is predominantly
financial.\18\ The proposed rule clarifies that revenues and assets
attributable to a subsidiary of an insured depository institution also
are considered to be financial in nature. This ensures that such
revenues and assets are consistently treated as financial regardless of
whether a company holds an interest in such a subsidiary directly or
indirectly through an insured depository institution. Moreover, under
the Federal banking laws, a subsidiary of an insured depository
institution generally may engage only in the types of banking
activities permissible for its parent insured depository institution
and other financial activities as expressly authorized by Federal law.
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\16\ See Sec. 225.301(b) of the Proposed Rule.
\17\ See Sec. 225.301(c) of the Proposed Rule.
\18\ See 12 U.S.C. 5311(a)(6).
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Under the proposed two-year test, the amount of a company's
financial revenues and financial assets would be determined as a
percentage of the company's consolidated annual gross revenues and
consolidated total assets, respectively, as determined under and in
accordance with U.S. generally accepted accounting principles (GAAP) or
International Financial Reporting Standards (IFRS).\19\ To reduce the
potential for companies to arbitrage the 85 percent financial test by
changing the accounting standards used for these purposes, the rule
specifically provides that the accounting standards used for the
predominantly financial test must be the same standards that the
company uses in the ordinary course of its business in preparing its
consolidated financial statements.
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\19\ See Sec. 225.300(a) of the Proposed Rule. To account for
the possibility that a foreign company may not use either GAAP or
IFRS in preparing its consolidated annual financial statements, the
proposed rule would allow a company, with the Board's approval, to
use another set of accounting standards for purposes of determining
whether the company is predominantly engaged in financial
activities. In reviewing any request to use alternative accounting
standards, the Board would carefully review whether the proposed
alternative accounting standards are likely to ensure a fair and
accurate presentation of the company's revenues and assets in a
manner similar to GAAP or IFRS.
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The Board proposes to allow companies to use their consolidated,
year-end financial statements prepared in accordance with GAAP or IFRS
as the basis for determining their annual gross revenue and
consolidated assets for purposes of the two-year test because this
methodology is likely to provide a transparent, accurate, and
comparable basis for determining such amounts across companies and,
thus, should facilitate the ability of companies and, if necessary, the
Board or the Council to determine whether they are a nonbank financial
company for purposes of Title I of the Dodd-Frank Act. Moreover,
allowing companies to use the year-end consolidated financial
statements that they already prepare for financial reporting or other
purposes should help reduce potential regulatory burden.
To further help facilitate compliance with the proposed rule and
reduce burden, the proposed rule includes two rules of construction
governing the application of the two-year test to revenues and assets
attributable to a company's minority, less-than-controlling equity
investments in unconsolidated entities. Under the first rule of
construction, the revenues derived from, and assets related to, a
company's equity investment in another company (the ``investee
company'') the financial statements of which are not consolidated with
those of the company under applicable accounting standards would be
considered as financial revenues or assets if the investee company
itself is predominantly engaged in financial activities under the 85-
percent, two-year test set forth in Sec. 225.301(a)(1) or (2) of the
proposed rule.\20\ Treating the revenues and assets attributable to
such an investment as financial based on the aggregate mix of the
investee company's revenues and assets is consistent with the statutory
definition of a nonbank financial company generally, which treats an
entire nonbank company as financial if 85 percent or more of the
company's revenues or assets are attributable to financial
activities.\21\ This approach also avoids requiring a company to
determine the precise percentage of an investee company's activities
that is financial in order to determine the portion of the company's
revenues or assets related to the investment that should be treated as
financial. Companies tend to have less access to detailed business
information from other companies in which they have a non-controlling,
minority investment than companies that are consolidated in the
company's financial statements.
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\20\ See Sec. 225.301(e)(1) of the Proposed Rule.
\21\ See 12 U.S.C. 5311(a)(4) and (a)(6).
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The second rule of construction would permit (but not require) a
company to treat as nonfinancial the revenues and assets attributable
to a limited amount of de minimis equity investments in investee
companies without having to separately determine whether the investee
company is itself predominantly engaged in financial activities.\22\
This rule of construction is subject to several conditions designed to
limit the potential for these de minimis investments to substantially
alter the character of the activities of a company.
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\22\ See Sec. 225.301(e)(2) of the Proposed Rule.
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Specifically, this rule of construction provides that a company may
treat revenues derived from, or assets related to, an equity investment
by the company in an investee company as revenues or assets not derived
from, or related to, activities that are financial in nature
(regardless of the type of activities conducted by the other company),
if (i) the company owns less than five percent of any class of
outstanding voting shares, and less than 25 percent of the total
equity, of the investee company; (ii) the financial statements of the
investee company are not consolidated with those of the company under
applicable accounting standards; (iii) the company's investment in the
investee company is not held in connection with the conduct of any
financial activity (such as, for example, investment advisory
activities or merchant banking investment activities) by the company or
any of its subsidiaries; (iv) the investee company is not a bank, bank
holding company, broker-dealer, insurance company, or other regulated
financial institution; and (v) the aggregate amount of revenues or
assets treated as nonfinancial under the rule of construction in any
year does not exceed five percent of the company's annual gross
financial revenues or consolidated total financial assets of the
company.\23\
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\23\ See id.
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2. Case-By-Case Determination by the Board
The proposed rule also allows the Board, on a case-by-case basis
and based on all the facts and circumstances, to determine that a
company is predominantly engaged in financial activities because either
(i) 85 percent or more of the consolidated annual gross revenues of the
company are derived from activities that are financial in nature under
section 4(k) of the BHC Act or from the ownership, control, or
activities of an insured depository institution or a subsidiary of such
an institution; or (ii) 85 percent or more of the consolidated assets
of the company are related to activities that are financial in nature
under section 4(k) of the BHC Act or to the ownership, control, or
activities of an insured depository
[[Page 7735]]
institution or a subsidiary of such an institution.\24\
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\24\ See Sec. 225.301(a)(3) of the Proposed Rule.
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This provision of the proposed rule is designed to provide the
Board the flexibility, in appropriate circumstances, to consider
whether a company meets the statute's 85 percent financial revenue or
asset test based on the full range of information that may be available
concerning the company's activities and assets (including information
obtained from other Federal or State financial supervisors or agencies)
at any time. For example, the Board notes that the mix of a company's
revenues or assets, as well as the risks the company may pose to the
U.S. financial system, may change significantly and quickly as a result
of various types of transactions or actions, such as a merger,
consolidation, acquisition, establishment of a new business line, or
the initiation of a new activity. Moreover, these transactions and
actions may occur at any time during a company's fiscal year and,
accordingly, the effects of the transactions or actions may not be
reflected in the year-end consolidated financial statements of the
company for several months. Section 225.301(a)(3) of the proposed rule
would allow the Board to promptly consider the effect of changes in the
nature or mix of a company's activities as a result of such a
transaction or action where such changes may affect the judgment of the
Council as to whether the company should be designated and subject to
consolidated supervision by the Board under section 113 of the Dodd-
Frank Act to help protect the financial stability of the United States.
The Board would expect to conduct such a case-by-case review of whether
a company is predominantly financial only when justified by the
circumstances.
3. Activities That Are Financial in Nature
As noted above, the Dodd-Frank Act defines financial activities by
reference to those activities that have been determined to be financial
in nature under section 4(k) of the BHC Act (as amended by the Gramm-
Leach-Bliley Act). Existing Sec. 225.86 of the Board's Regulation Y
(12 CFR 225.86) references all of the activities that already have been
determined--by statute, regulation or order--to be financial in nature
under section 4(k) of the BHC Act. In order to assist nonbank companies
in determining whether they are predominantly engaged in financial
activities, the proposed rule specifies that these activities are
``financial in nature'' for purposes of the proposed rule and provides
cross-references to the individual parts of Sec. 225.86 of the Board's
Regulation Y that identify these activities. These activities also are
summarized below.\25\
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\25\ Only summary descriptions of the activities that have been
determined to be financial in nature are provided in this
Supplementary Information. For complete information on the scope of
these activities please refer to the sections of the Board's
Regulation Y referenced. Besides authorizing financial holding
companies to engage in activities that have been determined to be
``financial in nature,'' section 4(k)(1) of the BHC Act also permits
a financial holding company to engage in activities that (i) the
Board, in consultation with the Secretary of the Treasury, has
determined to be ``incidental'' to a financial activity; or (ii) the
Board has determined to be ``complementary to financial activities
and do not pose a substantial risk to the safety and soundness of
depository institutions or the financial system generally.'' See 12
U.S.C. 1843(k)(1)(A) and (B). Because section 102(a)(6) of the Dodd-
Frank Act refers only to activities that have been determined to be
financial in nature under section 4(k), activities that have been
(or are) determined to be ``incidental'' to financial activities
(such as ``finder'' activities listed in Sec. 225.86(d) of
Regulation Y) or to be ``complementary'' to financial activities
under section 4(k) are not considered financial activities for
purposes of determining whether a company is predominantly engaged
in financial activities under section 102(a)(6) of the Dodd-Frank
Act.
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Section 4(k) of the BHC Act also authorizes the Board, in
consultation with the Secretary of the Treasury, to determine in the
future that additional activities are ``financial in nature.'' \26\ The
proposed rule expressly recognizes that additional activities, beyond
those already determined to be financial in nature and identified in
Sec. 225.86(a), (b), or (c) of the Board's Regulation Y, may be
determined to be financial in nature under section 4(k).\27\ Upon such
a determination with respect to an activity, nonbank companies must
include any revenues or assets attributable to the activity as
financial revenues and assets for purposes of determining whether they
are predominantly engaged in financial activities and, thus, a
``nonbank financial company'' for purposes of Title I of the Dodd-Frank
Act.
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\26\ See 12 U.S.C. 1843(k)(1) and (2).
\27\ See 225.301(d)(1)(ii) and (iii) of the Proposed Rule. These
activities include those activities that the Board, in consultation
with the Secretary of the Treasury, may determine in a specific
instance are financial in nature under section 4(k)(5) of the BHC
Act and Sec. 225.86(e) of Regulation Y (12 U.S.C. 1843(k)(5) and 12
CFR 225.86(e)) because the activities involve lending, exchanging,
transferring, investing for others, or safeguarding financial assets
other than money or securities; providing any device or other
instrumentality for transferring money or other financial assets;
and arranging, effecting, or facilitating financial transactions for
the account of third parties.
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a. Closely Related to Banking Activities. Among the activities that
section 4(k) of the BHC Act defines as being ``financial in nature''
are all of the activities that the Board had determined, by regulation
or order, prior to November 12, 1999, to be ``so closely related to
banking as to be a proper incident thereto'' under section 4(c)(8) of
the BHC Act.\28\ These activities are listed in Sec. 225.28(b) and
Sec. 225.86(a)(2) of the Board's Regulation Y (12 CFR 225.28(b) and
225.86(a)(2)) and include, among other activities--
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\28\ See 12 U.S.C. 1843(k)(4)(F).
Making, acquiring, brokering, or servicing loans or
other extensions of credit (including factoring, issuing letters of
credit and accepting drafts);
Leasing personal or real property or acting as agent,
broker, or adviser in leasing such property;
Performing functions or activities that may be
performed by a trust company (including activities of a fiduciary,
agency, or custodial nature), in the manner authorized by Federal or
State law;
Acting as investment or financial advisor to any
person, including serving as investment adviser to an investment
company registered under the Investment Company Act of 1940 (15
U.S.C. 80a-1 et seq.), and sponsoring, organizing, and managing a
closed-end investment company;
Acting as a futures commission merchant for the
execution, clearance, or execution and clearance of any futures
contract and option on a futures contract traded on an exchange in
the United States or abroad;
Engaging as principal in foreign exchange as well as a
broad range of forward contracts, options, futures, options on
futures, swaps, and similar contracts, whether traded on exchanges
or not;
Issuing and selling at retail money orders and similar
consumer-type payment instruments;
Providing data processing, data storage and data
transmission services, facilities, databases, advice, and access to
such services, facilities, or databases by any technological means,
with respect to financial data and, to a limited extent,
nonfinancial data;
Providing administrative and other services to mutual
funds;
Check cashing and wire transmission services; and
Real estate title abstracting.
b. Activities determined to be usual in connection with the
transaction of banking abroad. Section 4(k) also provides that
``financial in nature'' activities include those activities that the
Board had determined by regulation in effect on November 11, 1999, to
be usual in connection with the transaction of banking or other
financial operations abroad. These activities are listed in Sec.
225.86(b) of the Board's Regulation Y (12 CFR 225.86(b)) and include,
among other activities:
Management consulting services;
Operating a travel agency in connection with the
offering of financial services; and
[[Page 7736]]
Organizing, sponsoring, and managing a mutual fund.
c. Activities defined as financial in nature by the GLB Act. The
GLB Act itself also defined a number of important activities as being
financial in nature. These activities, which are referenced in Sec.
225.86(c) of the Board's Regulation Y (12 CFR 225.86(c)), include,
among other activities:
Acting as a principal or agent in the sale of insurance
or annuities;
Underwriting, dealing in, or making a market in
securities; and
Acquiring and controlling shares, assets, or other
ownership interests in nonfinancial companies as part of a bona fide
underwriting or merchant or investment banking activity (so-called
``merchant banking'' activities).
The proposed rule provides that a company may request a
determination by the Board as to whether a particular activity is
financial in nature for purpose of section 4(k) of the BHC Act. This
procedure is substantially similar to the procedure outlined in Sec.
225.88 of Regulation Y under which a financial holding company or other
interested entity may request a determination from the Board that an
activity is financial in nature or incidental to a financial activity.
The Board expects this procedure might be used by those large or
interconnected nonbank companies that may potentially be subject to
designation by the Council under section 113 and that have questions
concerning whether certain of their activities are financial in nature.
Section 102(a)(6) of the Dodd-Frank Act specifically provides that,
if an activity is ``financial in nature'' under section 4(k) of the BHC
Act, the activity is considered a financial activity for purposes of
determining whether a nonbank company is predominantly engaged in
financial activities. The Dodd-Frank Act does not impose any additional
conditions, beyond those that may apply under section 4(k) or the
Board's Regulation Y, for an activity to be considered a financial
activity for purposes of the predominantly financial test.
Accordingly, the proposed rule broadly defines ``financial
activities'' to include all activities that have been, or may be,
determined to be ``financial in nature'' under section 4(k) regardless
of where the activity is conducted by a company, regardless of whether
a bank holding company or a foreign banking organization could conduct
the activity under some legal authority other than section 4(k) of the
BHC Act, and regardless of whether any Federal or State law other than
section 4(k) of the BHC Act may prohibit or restrict the conduct of the
activity by a bank holding company.\29\ For example, all investment
activities that are permissible for a financial holding company under
the merchant banking authority in section 4(k)(4)(H) of the BHC Act and
the Board's implementing regulations (see 12 CFR 225.170 et seq.) are
considered financial activities even if some portion of those
activities could be conducted by a financial holding company under
another or more limited investment authority (such as the authority in
section 4(c)(6) of the BHC Act,\30\ which allows bank holding companies
to make passive, non-controlling investments in any company if the bank
holding company's aggregate investment represents less than five
percent of any class of voting securities and less than 25 percent of
the total equity of the company).\31\ Likewise, all securities
underwriting and dealing activities are considered financial activities
for purposes of the proposed rule even if a bank holding company or
other company affiliated with a depository institution may be limited
in the amount of such activity it may conduct or may be prohibited from
broadly engaging in the activity under the ``Volcker Rule.'' \32\
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\29\ See Sec. 225.301(d)(1) and (2) of the Proposed Rule.
\30\ 12 U.S.C. 1843(c)(6).
\31\ Similarly, an activity that has been determined to be
financial in nature under section 4(k), such as lending or insurance
underwriting activities, and that is conducted by a foreign company
overseas is considered a financial activity under the proposed rule
even if a foreign banking organization might be able to conduct the
activity overseas in reliance on section 4(c)(9) or 4(c)(13) of the
BHC Act (12 U.S.C. 1843(c)(9) or (13)), rather than section 4(k).
\32\ 12 U.S.C. 1851 et seq.
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Finally, the Board notes that section 113(c) of the Dodd-Frank Act
gives the Council the authority to subject the financial activities of
any company to supervision by the Board if the Council determines that:
(i) The company is organized and operates in such a manner to evade
application of Title I of the Dodd-Frank Act; and (ii) material
financial distress related to, or the nature, scope, size, scale,
concentration, interconnectedness, or mix of, the company's financial
activities would pose a threat to the financial stability of the United
States.\33\ Companies that are engaged in activities that are financial
in nature, but that alter the manner in which they conduct those
activities for purposes of evading designation by the Council under
section 113 and supervision by the Board, may be subject to designation
by the Council under the special anti-evasion authority in section
113(c). Such an attempt to evade section 113 might occur, for example,
if a large, interconnected company that is predominantly engaged in
financial activities slightly alters the manner in which it conducts an
activity that is financial in nature so that the activity does not
comply with one of the restrictions that govern the conduct of the
activity by a bank holding company for the purpose of reducing the
company's financial revenues and assets under section 102(a)(6) and
avoiding designation under section 113 of the Dodd-Frank Act.
---------------------------------------------------------------------------
\33\ 12 U.S.C. 5323(c).
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B. Significant Nonbank Financial Company and Significant Bank Holding
Company
As discussed above, the proposed rule also defines the terms
``significant nonbank financial company'' and ``significant bank
holding company,'' which are used in connection with the criteria the
Council must consider in determining whether to require that a nonbank
financial company become supervised by the Board under section 113 of
the Dodd-Frank Act. A firm that is defined as a significant nonbank
financial company or a significant bank holding company does not become
subject to any additional supervision or regulation by virtue of that
definition. Rather, relationships between firms and these significant
nonbank financial companies and significant bank holding companies
become a relevant factor in other determinations and additional
information is collected about these relationships.
Specifically, the proposed rule defines a ``significant nonbank
financial company'' to mean (i) any nonbank financial company
supervised by the Board; and (ii) any other nonbank financial company
that had $50 billion or more in total consolidated assets as of the end
of its most recently completed fiscal year.\34\ The proposed rule
defines a ``significant bank holding company'' as any bank holding
company, or foreign bank that is treated as a bank holding company,
that had $50 billion or more in total consolidated assets as of the end
of the most recently completed calendar year (as reported by the bank
holding company or foreign bank on the appropriate Federal Reserve
form).\35\
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\34\ See Sec. 225.302(b) of the Proposed Rule.
\35\ See Sec. 225.302(c) of the Proposed Rule.
---------------------------------------------------------------------------
In establishing these definitions, the Board considered its
supervisory experience with bank holding companies as well as the fact
that Congress established $50 billion in total consolidated assets as
the threshold at which bank holding companies should
[[Page 7737]]
be subject to enhanced prudential supervision without any special
determination by the Council that the bank holding company's failure
would pose a threat to financial stability.\36\ The proposed definition
is designed to provide a transparent standard that the Council may use
in meeting its statutory obligation to consider the relationships of a
nonbank financial company under consideration for designation with
other ``significant'' firms. The Board notes that section 113 also
permits the Council to consider a nonbank financial company's
relationships with one or more other nonbank financial companies or
bank holding companies that are not considered, by rule, to be
significant whenever the Council determines that such risk-related
information would be useful in assessing the potential for the company
to pose systemic risks.\37\
---------------------------------------------------------------------------
\36\ See 12 U.S.C.. 5365 et seq.
\37\ See 12 U.S.C. 5323(a)(2)(K) and (b)(2)(K).
---------------------------------------------------------------------------
In addition to being relevant to the Council's determinations
regarding whether to subject a nonbank financial company to Board
supervision, the terms ``significant nonbank financial company'' and
``significant bank holding company'' are used in connection with the
credit exposure reports that nonbank financial companies supervised by
the Board and bank holding companies and foreign banks treated as bank
holding companies with $50 billion or more in assets must prepare and
file under section 165(d)(2) of the Dodd-Frank Act.\38\ The Board and
the FDIC are jointly responsible for developing rules to implement
these credit exposure reporting requirements. The Board expects to
review the definition of ``significant'' nonbank financial companies
and bank holding companies as part of the rulemaking to be conducted
under section 165(d)(2) of the Dodd-Frank Act.
---------------------------------------------------------------------------
\38\ 12 U.S.C. 5365(d)(2).
---------------------------------------------------------------------------
III. Request for Comments
The Board is interested in receiving comments on all aspects of the
proposed rule. Comments also are specifically requested on the
following matters:
1. With respect to the portions of the rule pertaining to whether a
company is predominantly engaged in financial activities:
(a) Is the two-year test established in Sec. Sec. 225.301(a)(1)
and (2) appropriate, or are there other methods that should be used
as a general matter to determine whether a company is predominantly
engaged in financial activities?
(b) Is the use of consolidated year-end financial statements of
a company prepared in accordance with GAAP or IFRS an appropriate
basis for determining the company's annual gross consolidated
financial revenues and consolidated assets? Are there other methods
that should be permitted? If so, what are the potential benefits and
drawbacks of such other methods?
(c) Are the definitions contained in the proposed rule
appropriate?
(d) Are there any other activities that should either be
included or excluded from the definition of activities that are
considered to be financial in nature?
(e) Are there other matters that the Board should address as
part of the rulemaking to establish the requirements for determining
if a company is predominantly engaged in financial activities as
required by section 102(b) of the Dodd-Frank Act?
2. With respect to the proposed definitions of significant
entities:
(a) Are the definitions contained in the proposed rule
appropriate?
(b) Are there other matters that the Board should address as
part of the rulemaking to define the terms ``significant nonbank
financial company'' and ``significant bank holding company''?
IV. Administrative Law Matters
A. Paperwork Reduction Act
In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C.
Ch. 3506; 5 CFR 1320 Appendix A.1), the Board reviewed the proposed
rule under the authority delegated to the Board by the Office of
Management and Budget (``OMB'').
The collections of information that are proposed by this rulemaking
are found in 12 CFR 225.301(f). Under this section, a company may
request a determination from the Board as to whether a particular
activity is financial in nature for purposes of this section. The
request must be in writing and must include specific information as
described in section 225.301(f)(2). Submission of such a request by a
company is voluntary. Submitters of such requests are expected to be
nonbank companies that believe the nature, scope, size, scale,
concentration, interconnectedness or mix of its activities might cause
the firm to be considered for designation by the Council under section
113 of the Dodd-Frank Act and that seek guidance as to whether the
company is predominantly engaged in financial activities and, thus,
eligible for such designation.
The Board may not conduct or sponsor, and an organization is not
required to respond to, this information collection unless it displays
a currently valid OMB control number. The OMB control number will be
assigned. It is estimated that the burden per response would be four
hours and that there would be three respondents providing this
information annually. Therefore, the total amount of annual burden is
estimated to be twelve hours.
Comments are invited on: (a) Whether the proposed collection of
information is necessary for the proper performance of the Federal
Reserve's functions; including whether the information has practical
utility; (b) the accuracy of the Federal Reserve's estimate of the
burden of the proposed information collection, including the cost of
compliance; (c) ways to enhance the quality, utility, and clarity of
the information to be collected; and (d) ways to minimize the burden of
information collection on respondents, including through the use of
automated collection techniques or other forms of information
technology. Comments on the collections of information should be sent
to Secretary, Board of Governors of the Federal Reserve System,
Washington, DC 20551, with copies of such comments to be sent to the
Office of Management and Budget, Paperwork Reduction Project,
Washington, DC 20503.
B. Regulatory Flexibility Act
In accordance with Section 3(a) of the Regulatory Flexibility Act,
5 U.S.C. 601 et seq. (``RFA''), the Board is publishing an initial
regulatory flexibility analysis of the proposed rule. The RFA requires
an agency either to provide an initial regulatory flexibility analysis
with a proposed rule for which a general notice of proposed rulemaking
is required or to certify that the proposed rule will not have a
significant economic impact on a substantial number of small entities.
Based on its analysis and for the reasons stated below, the Board
believes that this proposed rule would not have a significant economic
impact on a substantial number of small entities. Nevertheless, the
Board is publishing an initial regulatory flexibility analysis. A final
regulatory flexibility analysis will be conducted after consideration
of comments received during the public comment period.
In accordance with sections 102(b) and 102(a)(7) of the Dodd-Frank
Act, the Board is proposing to amend Regulation Y (12 CFR 225 et seq.)
to establish the criteria for determining if a company is
``predominantly engaged in financial activities'' and to define the
terms ``significant nonbank financial company'' and ``significant bank
holding company.'' \39\ The reasons and justifications for the proposed
rule are described in the Supplementary Information. As discussed in
the Supplementary Information, the criteria and definitions that would
be established by the proposed rules are
[[Page 7738]]
relevant to the authority of the Council to require that a nonbank
financial company become subject to consolidated prudential supervision
by the Board because material financial distress at the company, or the
nature, scope, size, scale, concentration, interconnectedness, or mix
of the company's activities, could pose a threat to the financial
stability of the United States.
---------------------------------------------------------------------------
\39\ See 12 U.S.C. 5311(a)(7) and (b).
---------------------------------------------------------------------------
Although asset size may not be the determinative factor of whether
a company may pose systemic risks, it is an important
consideration.\40\ Under regulations issued by the Small Business
Administration (``SBA''), firms within the ``Finance and Insurance''
sector are considered ``small'' if they have asset sizes that vary from
$7 million or less in assets to $175 million or less in assets.\41\ The
Board believes that the Finance and Insurance sector constitutes a
reasonable universe of firms for these purposes because such firms
generally engage in activities that are financial in nature. A
financial firm that is at or below these size thresholds is not likely
to be designated by the Council under section 113 of the Dodd-Frank Act
because material financial distress at such a firm, or the nature,
scope, size, scale, concentration, interconnectedness, or mix of its
activities, is not likely to pose a threat to the financial stability
of the United States.\42\
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\40\ See 76 FR 4555 (2011).
\41\ 13 CFR 121.201.
\42\ The terms ``significant nonbank financial company'' and
``significant bank holding company'' also are used in the credit
exposure reporting provisions of section 165(d) of the Dodd-Frank
Act, which apply to bank holding companies and foreign banks that
are treated as a bank holding company that have $50 billion or more
in assets (as well as nonbank financial companies supervised by the
Board). Bank holding companies and foreign banks subject to these
credit exposure reporting requirements substantially exceed the $175
million asset threshold at which a banking entity is considered
``small'' under regulations issued by the SBA.
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In addition, as described in the Supplementary Information, the
Board also has taken several steps to reduce the potential burden of
the proposed rule on all companies that may be affected by the rule.
These steps include allowing companies to use their consolidated, year-
end financial statements prepared in accordance with GAAP or IFRS as
the basis for determining whether they are predominantly engaged in
financial activities, and the establishment of two rules of
construction governing the application of the two-year test to revenues
and assets attributable to a company's minority, less-than-controlling
equity investments in other unconsolidated entities.
List of Subjects in 12 CFR Part 225
Administrative practice and procedure, Banks, banking, Holding
companies, Reporting and recordkeeping requirements, Securities.
Authority and Issuance
For the reasons stated in the preamble, the Board proposes to amend
Regulation Y, 12 CFR part 225, as follows:
PART 225--BANK HOLDING COMPANIES AND CHANGE IN BANK CONTROL
(REGULATION Y)
1. The authority citation for part 225 is revised to read as
follows:
Authority: 12 U.S.C. 1844(b), 3106 and 3108, 1817(j)(13),
1818(b)), 1831i, 1972, Pub. L. 98-181, title IX, and 5311(a)(7) and
(b).
2. Add Subpart N to part 225 to read as follows:
Subpart N--Nonbank financial companies supervised by the Board.
Sec.
225.300 Definitions.
225.301 Nonbank companies ``predominantly engaged'' in financial
activities.
225.302 Significant nonbank financial companies and significant bank
holding companies.
Sec. 225.300 Definitions.
For purposes of this part, the following definitions shall apply:
(a) Applicable accounting standards.--The term ``applicable
accounting standards'' with respect to a company means U.S. generally
accepted accounting principles (GAAP), international financial
reporting standards (IFRS), or such other accounting standards
applicable to the company that the Board determines are appropriate,
that the company uses in the ordinary course of its business in
preparing its consolidated financial statements.
(b) Foreign nonbank financial company.--The term ``foreign nonbank
financial company'' means a company (other than a bank holding company,
a foreign bank or company that is subject to the BHC Act by reason of
section 8(a) of the International Banking Act of 1978, or a subsidiary
of any of the foregoing) that is--
(1) Incorporated or organized in a country other than the United
States; and
(2) Predominantly engaged (including through a branch in the United
States) in financial activities as defined in Sec. 225.301 of this
subpart.
(c) Nonbank financial company.--The term ``nonbank financial
company'' means a U.S. nonbank financial company and a foreign nonbank
financial company.
(d) Nonbank financial company supervised by the Board.--The term
``nonbank financial company supervised by the Board'' means a nonbank
financial company or other company that the Financial Stability
Oversight Council has determined under section 113 of the Dodd-Frank
Wall Street Reform and Consumer Protection Act of 2010 (12 U.S.C. 5323)
should be supervised by the Board and for which such determination is
still in effect.
(e) State.--The term ``State'' includes any State, commonwealth,
territory, or possession of the United States, the District of
Columbia, the Commonwealth of Puerto Rico, the Commonwealth of the
Northern Mariana Islands, American Samoa, Guam, and the United States
Virgin Islands.
(f) U.S. nonbank financial company.--The term ``U.S. nonbank
financial company'' means a company that--
(1) Is incorporated or organized under the laws of the United
States or any State;
(2) Is predominantly engaged in financial activities as defined in
Sec. 225.301 of this subpart; and
(3) Is not--
(i) A bank holding company or a subsidiary of a bank holding
company;
(ii) A Farm Credit System institution chartered and subject to the
provisions of the Farm Credit Act of 1971 (12 U.S.C. 2001 et seq.);
(iii) A national securities exchange (or parent thereof), clearing
agency (or parent thereof, unless the parent is a bank holding company
or a subsidiary of a bank holding company), security-based swap
execution facility, or security-based swap data repository that, in
each case, is registered with the Securities and Exchange Commission as
such; or
(iv) A board of trade designated as a contract market (or parent
thereof), a derivatives clearing organization (or parent thereof,
unless the parent is a bank holding company or a subsidiary of a bank
holding company), a swap execution facility, or a swap data repository
that, in each case, is registered with the Commodity Futures Trading
Commission as such.
Sec. 225.301 Nonbank companies ``predominantly engaged'' in financial
activities.
(a) In general. A company is ``predominantly engaged in financial
activities'' for purposes of section 102 of
[[Page 7739]]
the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010
(12 U.S.C. 5311) if--
(1) The consolidated annual gross financial revenues of the company
in either of its two most recently completed fiscal years represent 85
percent or more of the company's consolidated annual gross revenues (as
determined in accordance with applicable accounting standards) in that
fiscal year;
(2) The consolidated total financial assets of the company as of
the end of either of its two most recently completed fiscal years
represent 85 percent or more of the company's consolidated total assets
(as determined in accordance with applicable accounting standards) as
of the end of that fiscal year; or
(3) The Board determines, based on all the facts and circumstances,
that--
(i) The consolidated annual gross financial revenues of the company
represent 85 percent or more of the company's consolidated annual gross
revenues; or
(ii) The consolidated total financial assets of the company
represent 85 percent or more of the company's consolidated total
assets.
(b) Consolidated annual gross financial revenues. For purposes of
this section, the ``consolidated annual gross financial revenues'' of a
company means that portion of the consolidated annual gross revenues of
the company (as determined in accordance with applicable accounting
standards) that were derived, directly or indirectly, by the company or
any of its subsidiaries from--
(1) Activities that are financial in nature; or
(2) The ownership, control, or activities of an insured depository
institution or any subsidiary of an insured depository institution.
(c) Consolidated total financial assets. For purposes of this
section, the ``consolidated total financial assets'' of a company means
that portion of the consolidated total assets of the company (as
determined in accordance with applicable accounting standards) that are
related to--
(1) Activities that are financial in nature; or
(2) The ownership, control, or activities of an insured depository
institution or any subsidiary of an insured depository institution.
(d) Activities that are financial in nature. (1) In general. The
following activities shall be considered to be financial in nature for
purposes of this Sec. 225.301--
(i) Any activity, wherever conducted, described in Sec. Sec.
225.86(a), (b), or (c) of subpart I of this part;
(ii) Any activity, wherever conducted, determined to be financial
in nature under, and in accordance with, Sec. 225.86(e) of subpart I;
and
(iii) Any other activity, wherever conducted, determined to be
financial in nature by the Board, in consultation with the Secretary of
the Treasury, under section 4(k)(1)(A) of the BHC Act (12 U.S.C.
1843(k)(1)(A)).
(2) Effect of other authority. Any activity described in paragraph
(d)(1) of this section is considered financial in nature for purposes
of this section regardless of whether--
(i) A bank holding company (including a financial holding company
or a foreign bank) may be authorized to engage in the activity, or own
or control shares of a company engaged in such activity, under any
other provisions of the BHC Act or other Federal law including, but not
limited to, section 4(a)(2), section 4(c)(5), section 4(c)(6), section
4(c)(7), section 4(c)(9), or section 4(c)(13) of the BHC Act (12 U.S.C.
1843(a)(2), (c)(5), (c)(6), (c)(7), (c)(9), or (c)(13)) and the Board's
implementing regulations; or
(ii) Other provisions of Federal or State law or regulations
prohibit, restrict, or otherwise place conditions on the conduct of the
activity by a bank holding company (including a financial holding
company or foreign bank) or bank holding companies generally.
(e) Rules of construction. For purposes of determining whether a
company is predominantly engaged in financial activities under
paragraph (a)(1) or (2) of this section, the following rules shall
apply--
(1) Investments that are not consolidated. Except as provided in
paragraph (e)(2) of this section, revenues derived from, or assets
related to, an equity investment by the company in another company the
financial statements of which are not consolidated with those of the
company under applicable accounting standards shall be treated as
revenues derived from, and assets related to, activities that are
financial in nature if the other company is predominantly engaged in
financial activities as defined in paragraph (a)(1) or (2) of this
section.
(2) Treatment of de minimis investments. A company may treat
revenues derived from, or assets related to, an equity investment by
the company in another company as revenues or assets not derived from,
or related to, activities that are financial in nature, regardless of
the type of activities conducted by the other company, if--
(i) The company's aggregate ownership interest in the other company
constitutes less than five percent of any class of outstanding voting
shares, and less than 25 percent of the total equity, of the other
company;
(ii) The financial statements of the other company are not
consolidated with those of the company under applicable accounting
standards;
(iii) The company's investment in the other company is not held in
connection with the conduct by the company or any of its subsidiaries
of an activity that is considered to be financial in nature for
purposes of this subpart (such as, for example, investment advisory
activities or merchant banking activities);
(iv) The other company is not--
(A) A depository institution or a subsidiary of a depository
institution;
(B) A bank holding company or a savings and loan holding company;
(C) A foreign bank (as defined in section 1(b)(7) of the
International Banking Act of 1978 (12 U.S.C. 3101(7));
(D) Any of the following entities registered with the Securities
and Exchange Commission under the Securities Exchange Act of 1934 (15
U.S.C. 78a et seq.)--
(1) A broker or dealer;
(2) A clearing agency;
(3) A nationally recognized statistical rating organization;
(4) A transfer agent;
(5) An exchange registered as a national securities exchange; or
(6) A security-based swap execution facility, security-based swap
data repository, or security-based swap dealer;
(E) An investment adviser registered with the Securities and
Exchange Commission under the Investment Advisers Act of 1940 (15
U.S.C. 80b-1 et seq.);
(F) Any of the following entities registered with the Commodity
Futures Trading Commission under the Commodity Exchange Act (7 U.S.C. 1
et seq.)--
(1) A futures commission merchant;
(2) A commodity pool operator;
(3) A commodity trading advisor;
(4) An introducing broker;
(5) A derivatives clearing organization;
(6) A retail foreign exchange dealer; or
(7) A swap execution facility, swap data repository, or swap
dealer;
(G) A board of trade designated as a contract market by the
Commodity Futures Trading Commission under the Commodity Exchange Act
(7 U.S.C. 1 et seq.); or
[[Page 7740]]
(H) An insurance company subject to supervision by a State or
foreign insurance authority; and
(v) The aggregate dollar amount of revenues or assets treated by
the company as not financially related under this paragraph (e)(2) does
not exceed 5 percent of the consolidated annual gross financial
revenues of the company or the consolidated total financial assets of
the company, respectively, in that year.
(f) Requests regarding activities that may be financial in nature.
(1) In general. A company may request a determination from the Board as
to whether a particular activity is financial in nature for purposes of
this section.
(2) Required information. A request submitted under this paragraph
(f) must be in writing and must--
(i) Identify and describe the activity for which the determination
is sought, specifically describing what the activity involves and how
the activity is conducted;
(ii) Explain in detail why the activity should or should not be
considered financial in nature for purposes of this section; and
(iii) Provide information supporting the requested determination
and any other information required by the Board concerning the
activity.
Sec. 225.302 Significant nonbank financial companies and significant
bank holding companies.
(a) In general. This section defines the terms ``significant
nonbank financial company'' and ``significant bank holding company'' as
such terms are used in--
(1) Section 113 of the Dodd-Frank Wall Street Reform and Consumer
Protection Act of 2010 (``Dodd-Frank Act'') (12 U.S.C. 5323) relating
to the designation of nonbank financial companies by the Financial
Stability Oversight Council for supervision by the Board; and
(2) Section 165(d)(2) of the Dodd-Frank Act (12 U.S.C. 5365(d)(2))
relating to the credit exposure reports required to be filed by--
(i) A nonbank financial company supervised by the Board; and
(ii) A bank holding company or foreign bank subject to the Bank
Holding Company Act (12 U.S.C. 1841 et seq.) that has $50 billion or
more in total consolidated assets.
(b) Significant nonbank financial company. A ``significant nonbank
financial company'' means--
(1) Any nonbank financial company supervised by the Board; and
(2) Any other nonbank financial company that had $50 billion or
more in total consolidated assets (as determined in accordance with
applicable accounting standards) as of the end of its most recently
completed fiscal year.
(c) Significant bank holding company. A ``significant bank holding
company'' means any bank holding company or foreign bank treated as a
bank holding company under section 8(a) of the International Banking
Act of 1978 (12 U.S.C. 3106(a)) that had $50 billion or more in total
consolidated assets as of the end of the most recently completed
calendar year, as reported--
(1) In the case of a bank holding company (other than a foreign
banking organization), on the Federal Reserve's FR Y-9C (Consolidated
Financial Statements for Bank Holding Companies); and
(2) In the case of a foreign banking organization that is or is
treated as a bank holding company, on the Federal Reserve's Form FR Y-
7Q (Capital and Asset Report for Foreign Banking Organizations).
By order of the Board of Governors of the Federal Reserve
System, February 7, 2011.
Jennifer J. Johnson,
Secretary of the Board.
[FR Doc. 2011-2978 Filed 2-10-11; 8:45 am]
BILLING CODE 6210-01-P