Fed Proposal to Bring Clarity, Transparency to Bank Control Determinations

The Federal Reserve today issued a proposal to revise its existing rules for determining control of a banking firm by another company under the Bank Holding Company Act and the Home Owners’ Loan Act. The proposal is intended to provide greater transparency and clarity regarding the facts and circumstances the Fed “generally considers most relevant when assessing controlling influence,” which the American Bankers Association has long called for.

The proposed framework “provide[s]a series of presumptions of control for use by the Board in control proceedings and other control determinations,” and creates a tiered structure for these presumptions, based on the level of voting ownership at three different levels: 5%, 10% and 15%. The Fed noted it would also consider several additional factors, including the size of a company’s total equity investment, rights to director representation and the scope of business relationships.

The Fed’s proposal comes as many banks are considering partnerships with fintech firms and other organizations. Fed staff noted that the additional transparency provided by the proposal “should have an incremental increase in the ability of a banking organization to make investments in other companies—including fintech companies—by generally reducing the risk of unexpected control concerns.”

Comments on the proposal are due in 60 days.