Skip to main content
  1. Home
  2. Holding and Nonbank Financial Companies
  3. Regulation Y
  4. Background and Summary of Regulation Y

Background and Summary of Regulation Y

4-163
The Bank Holding Company Act of 1956 (act of May 9, 1956, ch. 240, 70 Stat. 133, 12 USC 1841-1849) was enacted to define bank holding companies, control their expansion, and require divestment of their nonbanking interests. The act also details the Federal Reserve Board’s administrative responsibilities and enforcement powers and provides for civil and criminal penalties.
The 1970 amendments to the act (act of December 31, 1970, Pub. L. 91-607, 84 Stat. 1760) were enacted primarily to bring the previously exempt one-bank holding companies within the coverage of the act. Companies covered by the amendments were permitted to retain their nonbanking interests indefinitely under certain prescribed conditions (§ 4(a)(2), 12 USC 1843(a)(2)).
Regulation Y was promulgated by the Board under the authority of the Bank Holding Company Act. Primarily, the regulation sets forth procedures for determining control and for obtaining Board approval for the acquisition of voting shares or assets of banks or nonbank companies. Regulation Y also specifies those nonbank activities that are closely related to banking and therefore within the scope of activities permissible for bank holding companies. Foreign activities of domestic bank holding companies and permissible activities for foreign bank holding companies are separately dealt with in the regulation. The Board amended Regulation Y in 1979 to implement the Change in Bank Control Act of 1978 (12 USC 1817(j)(13)) and completely revised the regulation in 1984.
4-164

DETERMINATIONS REGARDING CONTROL (§ 225.31)

In addition to the presumptions of control specified in section 2 of the act, rebuttable presumptions of control, specified in section 2(g)(3) of the act, are normally established by the following factual circumstances: interlocking management in combination with specified ownership interests; aggregate control of over 25 percent of voting shares by family members or management officials of a company that itself owns 5 percent of such shares; and the existence of certain management contracts, restrictions on voting shares, or convertible securities (§ 225.31(d)). A company may request a hearing to contest the Board’s preliminary determination of control.
4-165

ACQUISITION OR RETENTION OF BANK SHARES OR ASSETS (§  225.14)

Application for Board approval of any transaction requiring approval under section 3(a) of the act must be filed with the appropriate Federal Reserve Bank and processed in accordance with the procedures specified in the act and in section 262.3 of the Board’s Rules of Procedure.
4-166

NONBANKING ACTIVITIES (§ 225.25)

The Board has determined that certain nonbank activities are so closely related to banking or managing or controlling banks as to be a proper incident thereto (§ 225.25). Thus, any bank holding company may engage in, or retain or acquire an interest in a company that engages in, one or more of the specified activities, provided that it would be in the public interest. An application may be filed for a determination that activities other than those specified are closely related to banking or managing or controlling banks. De novo entry into permissible activities or continued engagement in permissible activities earlier entered into de novo is permitted 30 days after a notice of the proposal is furnished to the appropriate Reserve Bank, unless there is a timely notification to the contrary or the transaction is permitted at an earlier date (§ 225.23(a)(1)).
4-167

Foreign Activities

A foreign bank holding company may engage in direct activities of any kind outside the United States, engage in direct activities in the United States that are incidental to its activities outside the United States, and own or control voting shares as prescribed by Regulation Y (§ 225.25) and Regulation K (12 CFR 211).
4-168

ADMINISTRATION (§ 225.5)

Each company is required to register with the Board within 180 days after becoming a bank holding company. A company that receives the Board’s prior approval to become a bank holding company may complete the registration requirement through submission of its first annual report to the Board. A bank holding company and its subsidiaries are subject to examination by the Board.
4-169

CORPORATE PRACTICES (§ 225.4)

A bank holding company must give the Board written notice before purchasing or redeeming its equity securities if the gross consideration for the purchase or redemption, when aggregated with the net consideration paid by the company for all such purchases or redemptions during the preceding 12 months, is equal to 10 percent or more of the company’s consolidated net worth. The transaction will be approved by the appropriate Reserve Bank or referred to the Board for a decision. The Board may disapprove a proposed purchase or redemption if it finds that the proposal would constitute an unsafe or unsound practice or would violate any law, regulation, Board order, directive, or any condition imposed by, or written agreement with, the Board.
4-170

CHANGE IN BANK CONTROL (§ 225.41)

If a person or persons acting in concert are to acquire the power to vote 25 percent or more of a class of voting securities of a bank holding company or state member bank, the Board must receive prior notice, unless the acquisition is exempted (section 225.7(c) enumerates those transactions that are exempt from this prior-notice requirement). If a person acquires at least 10 percent but less than 25 percent of a class of voting securities of a bank holding company or state member bank, that person will not be considered to have the power to direct that institution’s management or policies unless (1) the institution has issued any class of securities subject to registration under section 12 of the Securities Exchange Act of 1934 (15 USC 781) or (2) immediately after the acquisition no other person will own a greater portion of that class of voting securities.
Back to top