(a) Capital deduction required prior to January 1, 2015, for state member
banks that are not advanced approaches banks (as defined in section
208.41). A state member bank that controls or holds an interest
in a financial subsidiary must comply with the following rules in
determining its compliance with applicable regulatory capital standards
(including the “well capitalized” standard of section 208.71(a)(1)):
(1) The bank must not consolidate
the assets and liabilities of any financial subsidiary with those
of the bank.
(2) For
purposes of determining the bank’s risk-based capital ratios under
appendix A of this part, the bank must—
(i) deduct 50 percent
of the aggregate amount of its outstanding equity investment (including
retained earnings) in all financial subsidiaries from both the bank’s
tier 1 capital and tier 2 capital; and
(ii) deduct the entire amount of the
bank’s outstanding equity investment (including retained earnings)
in all financial subsidiaries from the bank’s risk-weighted assets.
(3) For purposes
of determining the bank’s leverage capital ratio under appendix B
of this part, the bank must—
(i) deduct 50 percent of the aggregate
amount of its outstanding equity investment (including retained earnings)
in all financial subsidiaries from the bank’s tier 1 capital; and
(ii) deduct the entire
amount of the bank’s outstanding equity investment (including retained
earnings) in all financial subsidiaries from the bank’s average total
assets.
(4) For purposes of determining the bank’s ratio of tangible equity
to total assets under section 208.43(b)(5), the bank must deduct the
entire amount of the bank’s outstanding equity investment (including
retained earnings) in all financial subsidiaries from the bank’s tangible
equity and total assets.
(5) If the deduction from tier 2 capital required by paragraph (a)(2)(i)
of this section exceeds the bank’s tier 2 capital, any excess must
be deducted from the bank’s tier 1 capital.
(b) Capital requirements for advanced approaches
banks (as defined in section 208.41) and, after January 1, 2015, all
state member banks. Beginning on January 1, 2014, for a state
member bank that is an advanced approaches bank, and beginning on
January 1, 2015 for all state member banks, a state member bank that
controls or holds an interest in a financial subsidiary must comply
with the rules set forth in section 217.22(a)(7) of Regulation Q (12
CFR 217.22(a)(7)) in determining its compliance with applicable regulatory
capital standards (including the well capitalized standard of section
208.71(a)(1)).
(c) Financial-statement
disclosure of capital deduction. Any published financial statement
of a state member bank that controls or holds an interest in a financial
subsidiary must, in addition to providing information prepared in
accordance with generally accepted accounting principles, separately
present financial information for the bank reflecting the capital
deduction and adjustments required by paragraph (a) of this section.
3-383.1
(d) Safeguards for the bank. A state member bank that establishes, controls, or holds an interest
in a financial subsidiary must—
(1) establish procedures for identifying
and managing financial and operational risks within the state member
bank and the financial subsidiary that adequately protect the state
member bank from such risks; and
(2) establish and maintain reasonable policies
and procedures to preserve the separate corporate identity and limited
liability of the state member bank and the financial subsidiary.
(e) Application
of sections 23A and 23B of the Federal Reserve Act. For purposes
of sections 23A and 23B of the Federal Reserve Act (12 U.S.C. 371c,
371c-1)—
(1) a financial subsidiary
of a state member bank shall be deemed an affiliate, and not a subsidiary,
of the bank;
(2) the
restrictions contained in section 23A(a)(1)(A) of the Federal Reserve
Act (12 U.S.C. 371c(a)(1)(A)) shall not apply with respect to covered
transactions between the bank and any individual financial subsidiary
of the bank;
(3) the
bank’s investment in a financial subsidiary shall not include retained
earnings of the financial subsidiary;
(4) any purchase of, or investment in,
the securities of a financial subsidiary by an affiliate of the bank
will be considered to be a purchase of, or investment in, such securities
by the bank; and
(5)
any extension of credit by an affiliate of the bank to a financial
subsidiary of the bank will be considered to be an extension of credit
by the bank to the financial subsidiary if the Board determines that
such treatment is necessary or appropriate to prevent evasions of
the Federal Reserve Act and the Gramm-Leach-Bliley Act.
3-383.2
(f) Application of anti-tying
prohibitions. A financial subsidiary of a state member bank shall
be deemed a subsidiary of a bank holding company and not a subsidiary
of the bank for purposes of the anti-tying prohibitions of section
106 of the Bank Holding Company Act Amendments of 1970 (12 U.S.C.
1971 et seq.).
