[Code of Federal Regulations]
[Title 12, Volume 2]
[Revised as of January 1, 2003]
From the U.S. Government Printing Office via GPO Access
[CITE: 12CFR208.74]

[Page 249-250]
 
                       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 or a depository institution affiliate 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 the state member bank is not in 
compliance with the asset limitation set forth in Sec. 208.71(a)(2) or 
the safeguards set forth in Sec. 208.73(c), the Board will notify the 
state member bank in writing and identify the areas of noncompliance. 
The Board may provide this notice at any time before or after receiving 
notice from the state member bank under paragraph (a)(2) of this 
section.
    (2) Notification by state member bank. A state member bank must 
notify the appropriate Reserve Bank in writing within 15 calendar days 
of becoming aware that any depository institution affiliate of the bank 
has ceased to be well capitalized or well managed. The notification must 
identify the depository institution affiliate and the area(s) of 
noncompliance.
    (3) Execution of agreement. Within 45 days after receiving a notice 
from the Board 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) Agreement requirements. Any agreement required by paragraph 
(a)(3)(i) of this section must:
    (i) Explain the specific actions that the state member bank will 
take to correct all areas of noncompliance;
    (ii) Provide a schedule within which each action will be taken; and
    (iii) Provide any other information the Board may require.
    (5) 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, 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

[[Page 250]]

    (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.
    (6) 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.
    (7) Consultation. The Board will consult with all relevant Federal 
and state regulatory authorities in taking any action under this 
paragraph (a).
    (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 (b), the 
term ``equity capital'' includes, in addition to any equity instrument, 
any debt instrument issued by the financial subsidiary if the debt 
instrument qualifies as capital of the subsidiary under any Federal or 
state law, regulation or interpretation applicable to the subsidiary.