[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: 12CFR208.74]

[Page 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. 208.74  What happens if the state member bank fails to continue to meet certain requirements?

    (a) Qualifications and safeguards. The following procedures apply to 
a state member bank that controls or holds an interest in a financial 
subsidiary.
    (1) Notice by Board. If the Board finds that a state member bank or 
any of its depository institution affiliates fails to continue to be 
well capitalized and well managed or comply with the asset limitation 
set forth in Sec. 208.71(a)(2) or the safeguards set forth in 
Sec. 208.73(b), the Board will notify the state member bank in writing 
and identify the areas of noncompliance.
    (2) Notification by state member bank. A state member bank must 
promptly notify the Board if the bank becomes aware that any depository 
institution affiliate of the bank has ceased to be well capitalized and 
well managed.
    (3) Execution of agreement. Within 45 days after receiving a notice 
under paragraph (a)(1) of this section, or such additional period of 
time as the Board may permit, the:
    (i) State member bank must execute an agreement acceptable to the 
Board to comply with all applicable capital, management, asset and 
safeguard requirements; and
    (ii) Any relevant depository institution affiliate of the state 
member bank must execute an agreement acceptable to its appropriate 
Federal banking agency to comply with all applicable capital and 
management requirements.
    (4) Imposition of limits. Until the Board determines that the 
conditions described in the notice under paragraph (a)(1) of this 
section are corrected:
    (i) The Board may impose any limitations on the conduct or 
activities of the state member bank or any subsidiary of the bank as the 
Board determines to be appropriate under the circumstances and 
consistent with the purposes of section 121 of the Gramm-Leach-Bliley 
Act (12 U.S.C. 24a, 335, 371c, and 1971), including requiring the 
Board's prior approval for any financial subsidiary of the bank to 
acquire any company or engage in any additional activity; and
    (ii) The appropriate Federal banking agency for any relevant 
depository institution affiliate may impose any limitations on the 
conduct or activities of the depository institution or any subsidiary of 
that institution as the agency determines to be appropriate under the 
circumstances and consistent with the purposes of section 121 of the 
Gramm-Leach-Bliley Act (12 U.S.C. 24a, 335, 371c, and 1971).
    (5) Divestiture. The Board may require a state member bank to divest 
control of any financial subsidiary if the conditions described in a 
notice under paragraph (a)(1) of this section are not corrected within 
180 days of receipt of the notice or such additional period of time as 
the Board may permit. Any divestiture must be completed in accordance 
with any terms and conditions established by the Board.
    (6) Consultation. The Board will consult with all relevant Federal 
and state regulatory authorities in taking any action under this 
subsection.
    (b) Debt rating or alternative requirement. If a state member bank 
does not continue to meet any applicable debt rating or alternative 
requirement of Sec. 208.71(b), the bank may not, directly or through a 
subsidiary, purchase or acquire any additional equity capital of any 
financial subsidiary until the bank restores its compliance with the 
requirements of that section. For purposes of this paragraph, the term 
``equity capital'' includes, in addition to any equity investment, any 
debt instrument issued by the financial subsidiary if the instrument 
qualifies as capital of the subsidiary under federal or state law, 
regulation or interpretation applicable to the subsidiary.