Fed Finalizes Rule to Clarify Bank Control Determinations

The Federal Reserve today issued a final rule amending its existing rules for determining control of a company by another company under the Bank Holding Company Act and the Home Owners’ Loan Act. The final rule will provide greater transparency and clarity regarding the facts and circumstances the Fed considers most relevant when assessing controlling influence.

Under the final rule—which takes effect April 1—the Fed established a tiered structure for how it will make control determinations, based on the level of voting ownership at four different thresholds: less than 5%; 5% to 9.99%; 10% to 14.99%; and 15% to 24.99%. The Fed will 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.

At a time when many banks are pursuing partnerships with fintech firms and other organizations, the final rule is expected to provide additional transparency that will allow banks to more easily make investments in other companies by reducing the risk of unexpected control concerns. “The rule approved today will provide more regulatory transparency, predictability and compliance certainty, which will help community banks in their efforts to raise capital and further support lending and investment in the communities they serve,” said ABA President and CEO Rob Nichols. “The rule will also enhance banks’ ability to build partnerships with fintechs and other companies developing innovative banking tools to serve customers.”

ABA—which supported the Fed’s proposal in a previous comment letter—was engaged with the agency throughout the rulemaking process through its banker-led control determination working group. The Fed incorporated into the final rule ABA recommendations related to business relationships and shares held in a fiduciary capacity.