Fed Issues FAQs on Newly Effective Bank Control Framework Amendments

The Federal Reserve yesterday issued a frequently asked questions (FAQs) on its revised framework for determining control of a company by another company under the Bank Holding Company Act and the Home Owners’ Loan Act, which also took effect yesterday. The rule establishes a tiered structure for how the Fed will make control determinations.

Among other things, the FAQs clarify that the Fed would not require alterations to investment structures based on reasonable interpretations of Fed policy at the time the investment structure was created, and they clarify that an investor controlling less than one-third of each class of equity securities of the company would be deemed to control less than one-third of the total equity of such company.

The American Bankers Association supported the Fed’s proposal and has advocated for guidance that would bring greater clarity to the status of investments that were made prior to the amendments and to the calculation of total equity for purposes of the control regulations. The FAQs are expected to assist banks as they review and plan their investment activities and portfolios.