[Code of Federal Regulations]
[Title 12, Volume 2, Parts 200 to 219]
[Revised as of January 1, 2001]
From the U.S. Government Printing Office via GPO Access
[CITE: 12CFR208.73]

[Page 200-201]
 
                       TITLE 12--BANKS AND BANKING
 
                   CHAPTER II--FEDERAL RESERVE SYSTEM
 
PART 208--MEMBERSHIP OF STATE BANKING INSTITUTIONS IN THE FEDERAL RESERVE SYSTEM (REGULATION H)--Table of Contents
 
         Subpart G--Financial Subsidiaries of State Member Banks
 
Sec. 208.73  What additional provisions are applicable to state member banks with financial subsidiaries?

    (a) Capital deduction--(1) Capital deduction required. For purposes 
of determining compliance with applicable regulatory capital standards 
(including the well capitalized standard of Sec. 208.71(a)(1)), a state 
member bank that controls or holds an interest in a financial subsidiary 
must:
    (i) Deduct the aggregate amount of the bank's outstanding equity 
investment, including retained earnings, in all financial subsidiaries 
from its total assets and tangible equity and deduct such investment 
from its total risk-based capital (this deduction shall be made equally 
from Tier 1 and Tier 2 capital); and
    (ii) Not consolidate the assets and liabilities of any financial 
subsidiary with those of the bank.
    (2) Financial statement disclosure of capital deduction. Any 
published financial statement of a state member bank that controls or 
holds an interest in a financial subsidiary must, in addition to 
providing information prepared in accordance with generally accepted 
accounting principles, separately present financial information for the 
bank reflecting the capital deduction and adjustments required by 
paragraph (a)(1) of this section.
    (b) Safeguards for the bank. A state member bank that establishes, 
controls or holds an interest in a financial subsidiary must:
    (1) Establish procedures for identifying and managing financial and 
operational risks within the state member bank and the financial 
subsidiary that adequately protect the state member bank from such 
risks; and
    (2) Establish reasonable policies and procedures to preserve the 
separate corporate identity and limited liability of the state member 
bank and the financial subsidiaries of the state member bank.
    (c) Application of sections 23A and 23B of the Federal Reserve Act. 
For purposes of sections 23A and 23B of the Federal Reserve Act (12 
U.S.C. 371c, 371c-1):
    (1) A financial subsidiary of a state member bank shall be deemed an 
affiliate, and not a subsidiary, of the bank;
    (2) The restrictions contained in section 23A(a)(1)(A) of section 
23A shall not apply with respect to covered transactions between the 
bank and any individual financial subsidiary of the bank;
    (3) The bank's investment in a financial subsidiary shall not 
include retained earnings of the financial subsidiary;
    (4) Any purchase of, or investment in, the securities of a financial 
subsidiary by an affiliate of the bank will be considered to be a 
purchase of, or investment in, such securities by the bank; and
    (5) Any extension of credit by an affiliate of the bank to a 
financial subsidiary of the bank will be considered to be an extension 
of credit by the bank to the financial subsidiary if the Board 
determines that such treatment is necessary or appropriate to prevent 
evasions of the Federal Reserve Act and the Gramm-Leach-Bliley Act.
    (d) Application of anti-tying prohibitions. A financial subsidiary 
of a state

[[Page 201]]

member bank shall be deemed a subsidiary of a bank holding company and 
not a subsidiary of the bank for purposes of the anti-tying prohibitions 
of section 106 of the Bank Holding Company Act Amendments of 1970 (12 
U.S.C. 1971 et seq.).