The Federal Reserve Board on Thursday finalized a rule to simplify and increase the transparency of the Board’s rules for determining control of a banking organization. If a company has control over a banking organization, the company generally becomes subject to the Board’s rules and regulations.
The final rule is largely consistent with the proposal, establishing a comprehensive and public framework to determine when a company controls a bank or a bank controls a company. Previously, control reviews have been situation-specific and often followed precedents that were not available to firms or to the public.
The framework uses several factors to determine if a company has control over a bank. The key factors include the company’s total voting and non-voting equity investment in the bank; director, officer, and employee overlaps between the company and the bank; and the scope of business relationships between the company and the bank.
The rule clarifies and increases transparency by describing the combination of factors that would and would not trigger control concerns. The attached chart shows how different combinations of factors would or would not raise control concerns.
The rule will be effective on April 1.