AGENCY:

Board of Governors of the Federal Reserve System (Board).

ACTION:

Final rule.

SUMMARY:

The Board is amending its rules regarding delegation of authority to delegate to Federal Reserve Banks authority to approve certain types of applications, notices, and requests. Under the rule, Federal Reserve Banks are delegated authority to waive a requirement to file certain applications under the Bank Holding Company Act and the Home Owners' Loan Act; grant or deny requests for modifying certain commitments; authorize a state member bank to make a public welfare investment in accordance with section 9 of the Federal Reserve Act under certain circumstances; and approve certain requests, applications, and notices relating to international banking operations filed pursuant to the Board's Regulation K. The rule also modifies the delegation rules by authorizing the Federal Reserve Banks to approve applications and notices concerning mergers and acquisitions that do not exceed the Board's delegation criteria for competition after including deposits of qualifying credit unions weighted at 50 percent and deposits of “commercially active” thrift institutions weighted in most cases at 100 percent. In a limited number of cases, deposits of all thrifts would be weighted at 100 percent. To ensure the Board's delegation rules are consistent, the rule also revises or rescinds, as appropriate, certain existing delegations to the Federal Reserve Banks, the Secretary of the Board, and the Director of the Division of Supervision and Regulation.

DATES:

Effective July 3, 2019.

FOR FURTHER INFORMATION CONTACT:

Alison Thro, Assistant General Counsel, (202) 452-3236, Scott Tkacz, Senior Counsel, (202) 452-2744, or Jonah Kind, Attorney, (202) 452-2045, Legal Division, Susan Motyka, Deputy Associate Director, (202) 452-5280, Division of Supervision and Regulation, Anthony Iwuji, Manager, (202) 452-3254, Division of Consumer and Community Affairs, Board of Governors of the Federal Reserve System, 20th Street and C Street NW, Washington, DC 20551.

SUPPLEMENTARY INFORMATION:

I. Discussion

Section 11(k) of the Federal Reserve Act provides that the Board, by published order or rule, may delegate any of its functions, other than those related to rulemaking or principally to monetary and credit policies.^[1] Pursuant to this authority, the Board is amending its Rules Regarding Delegation of Authority (Delegation Rules) ^[2] to delegate authority to the Federal Reserve Banks (Reserve Banks) to act on certain types of applications, notices, and requests. The Board expects that these delegations of authority will allow the Federal Reserve System to process such applications, notices, and requests in a more efficient and timely manner. To ensure the Delegation Rules are consistent, the rule also revises or rescinds, as appropriate, certain existing delegations to the Reserve Banks, the Secretary of the Board, and the Director of the Division of Supervision and Regulation (S&R Director). Each of the changes to the Delegation Rules made by this rule are discussed in more detail below. Additionally, the Board is revising the Delegation Rules to update all references to the “Division of Banking Supervision and Regulation” to the “Division of Supervision and Regulation” to reflect the division's name change on December 5, 2016.

A. Waivers of Applications Required by the Bank Holding Company Act and the Home Owners' Loan Act

The Board's regulations provide for the waiver of applications required by the Bank Holding Company Act of 1956 (BHC Act) and the Home Owners' Loan Act (HOLA) in certain circumstances to avoid duplicative review of the same transaction by federal banking agencies. Under § 225.12(d)(2) of the Board's Regulation Y, applications normally required by the BHC Act when a bank holding company seeks to merge with another bank holding company or to acquire shares or control of a bank may be waived; similarly, under § 238.12(d)(1) of the Board's Regulation LL, applications normally required by HOLA when a savings and loan holding company seeks to merge with another savings and loan holding company or to acquire shares or control of a thrift may be waived.^[3] In both cases, an application may not be required from the holding company if the proposed transaction is also subject to approval by a federal banking regulator under section 18(c) of the Federal Deposit Insurance Act (Bank Merger Act) and meets certain other criteria.

If a transaction satisfies each of the criteria for a waiver under the Board's rules, an acquiring holding company seeking a waiver must provide notice of the transaction to the appropriate Reserve Bank at least 10 days prior to consummation.^[4] Under the Board's waiver rules, the holding company would not need to submit an application under the BHC Act or HOLA unless it is informed by the Reserve Bank within 10 days after the notice is submitted that an application is required.^[5] The Reserve Banks currently do not have delegated authority to act on a notice submitted by an acquiring holding company in connection with a waiver. However, the Board has determined that it would be appropriate for the Reserve Banks to act on waiver notices. Accordingly, the Board is amending the Delegation Rules to delegate authority to the Reserve Banks to inform an acquiring holding company that an application is required under the BHC Act or HOLA after receiving notice regarding a waiver, in accordance with § 225.12(d)(2) or § 238.12(d)(1).^[6]

B. Requests To Relieve or Modify Commitments

In connection with applications, notices, and requests submitted pursuant to various banking statutes over which the Federal Reserve has jurisdiction, persons may provide commitments to the Board or a Reserve Bank. Commitments are deemed to be conditions imposed in writing by the Board and may be enforced under applicable law.

The Board has previously delegated authority to the S&R Director to grant or deny requests to relieve or modify, including to extend the time for performing, any commitment relied upon by the Board or a Reserve Bank in acting upon an application or notice required by the BHC Act, the Bank Merger Act, the Change in Bank Control Act of 1978, the Federal Reserve Act, the International Banking Act, the Federal Deposit Insurance Act, or HOLA (Banking Statutes).^[7] The Board has determined that it would be appropriate for Reserve Banks to act on requests to relieve or modify commitments upon which the Reserve Bank relied in acting on a filing submitted pursuant to one or more of the Banking Statutes. Accordingly, the Board is revising its Delegation Rules to permit the Reserve Banks to grant or deny requests to relieve or modify (including extending the time for performing) such commitments, so long as the relief or modification would not be inconsistent with, or result in an evasion of, the provisions of the Reserve Bank's original action and the requests do not raise significant legal, supervisory, or policy issues. In acting on such requests, the Reserve Bank may take into account changed circumstances and good faith efforts to fulfill the commitments. No changes are being made to the Board's existing delegation of authority to the S&R Director to grant or deny requests to relieve or modify commitments made to the Board.

C. Public Welfare Investments

Section 9(23) of the Federal Reserve Act permits state member banks, subject to certain limits and other conditions, to make investments which are designed primarily to promote the public welfare (Public Welfare Investments).^[8] Under the Board's Regulation H, a state member bank must obtain prior approval before making a Public Welfare Investment if the bank or the proposed investment does not satisfy criteria relating to, among other things, the condition of the bank and the nature of the investment.^[9]

The Board previously has delegated to the Reserve Banks authority to approve a Public Welfare Investment that meets the conditions of § 208.22(b)(1)-(3), (b)(5), and (b)(7) of Regulation H, if the bank has at least an overall rating of “3” as of its most recent consumer compliance examination and the bank's Public Welfare Investments do not in the aggregate exceed 10 percent of the bank's capital and surplus.^[10] In addition, the Board previously has delegated to the S&R Director authority to approve a Public Welfare Investment under certain other circumstances.^[11]

The Board has determined that it would be appropriate for the Reserve Banks to act on certain proposals by a state member bank to make a Public Welfare Investment. Accordingly, the Board is revising the Delegation Rules to authorize the Reserve Banks to approve a Public Welfare Investment that is in accordance with the requirements of section 9(23) of the Federal Reserve Act, if the proposal raises no significant legal, supervisory, or policy issues. Under the revised Delegation Rules, the S&R Director would generally have delegated authority to approve a Public Welfare Investment proposal that raises significant legal, supervisory, or policy issues; however, any proposal that does not satisfy § 208.22(b)(1) of Regulation H would require Board action.^[12] In addition, the delegations expressly authorize the Reserve Banks and the S&R Director to determine, in connection with approving a Public Welfare Investment under their delegated authority, that the aggregate amount of a state member bank's Public Welfare Investments will not pose a significant risk to the deposit insurance fund in accordance with section 9(23) of the Federal Reserve Act. The delegations in this final rule supersede the Board's prior delegations of authority to the Reserve Banks and the S&R Director to approve Public Welfare Investments.

D. Proposals Under Subparts A and B of Regulation K

The Board's Regulation K sets forth rules regarding international banking operations. Subpart A of the regulation sets out rules governing the international and foreign activities of U.S. banking organizations, including procedures for establishing foreign branches and Edge and agreement corporations to engage in international banking, and for investing in foreign organizations. Subpart B sets out rules governing the activities of foreign banking organizations in the United States. Subparts A and B include numerous application and notice requirements for banking organizations that propose to engage in certain activities, open offices, or make or retain certain investments or acquisitions. The Board previously has delegated authority to the Secretary of the Board, the General Counsel, the S&R Director, and the Reserve Banks to act on certain applications, notices, and requests under both subparts A and B of Regulation K.

The Board has determined that it would be appropriate for the Reserve Banks to act on a number of applications, notices, and requests submitted pursuant to subparts A and B of Regulation K. Accordingly, the Board is revising the Delegation Rules to permit the Reserve Banks to act on certain proposals submitted pursuant to Regulation K. Generally, the authority under this new delegation is limited to proposals that do not raise significant legal, supervisory, or policy issues. The Board is also revising certain existing delegations of authority to the S&R Director, rescinding certain existing delegations to the Secretary of the Board, and reordering certain existing delegations to the Reserve Banks that appear in the Delegation Rules.

With respect to subpart A of Regulation K, concerning the foreign activities of U.S. banking organizations, the revisions to the Delegation Rules provide new authority and expand upon existing delegations of authority for the Reserve Banks to act on various proposals filed under that subpart. Reserve Banks will have delegated authority to act on proposals concerning the establishment of a foreign branch by a state member bank or an Edge corporation; the acquisition by a foreign branch of a member bank of all of the shares of a company that engages in activities in which the member bank is permitted to engage or that are incidental to the activities of the foreign branch; the amendment by an Edge corporation of its articles of association or charter; a foreign institution's acquisition of a majority of the shares of an Edge corporation; the acquisition of control of an Edge corporation; investments by a member bank in the stock of an agreement corporation; the extension of time within which an investor must divest of investments in entities engaged in impermissible activities or interests acquired to prevent a loss upon a debt previously contracted in good faith; investments made by a member bank in a foreign country; a member bank's engaging in underwriting, distribution, or dealing of equity securities outside the United States; the use of internal hedging models for determining compliance with investment limits; and a member bank's engaging in futures commission merchant activities on an mutual exchange or clearinghouse that requires members to guarantee or otherwise contract to cover losses suffered by the other members.

With respect to subpart B of Regulation K, concerning the activities of foreign banking organizations in the United States, the revisions to the Delegation Rules also delegate new authority and expand upon existing delegations of authority for Reserve Banks to act on proposals filed under that subpart concerning the establishment of certain permanent or temporary U.S. offices.

E. Competition

Section 3 of the BHC Act and certain other statutes administered by the Board concerning mergers and acquisitions prohibit the Board from approving proposals involving the formation of a holding company, the merger of holding companies, or the acquisition or merger of insured depository institutions that would result in a monopoly or would be in furtherance of an attempt to monopolize the business of banking in any relevant market.^[13] These statutes also prohibit the Board from approving proposals that would substantially lessen competition or tend to create a monopoly in any banking market, unless the Board finds that the anticompetitive effects of the proposal are clearly outweighed in the public interest by the probable effect of the proposal in meeting the convenience and needs of the community to be served.^[14]

The Board previously has delegated authority to the Reserve Banks to approve a proposal involving the formation of a bank holding company, the merger of bank holding companies or banks, or the acquisition of a bank holding company or insured depository institution, provided the proposal satisfies the Board's delegation criteria.^[15] In 2011, by order, the Board extended the delegation to include savings and loan holding companies in the same manner that the delegation applies to bank holding companies.^[16] With respect to competitive factors, the Board's delegation criteria require the Board to act on any such proposal which, upon consummation, would result in the control by a banking organization of over 35 percent of total deposits in any relevant banking market or result in a highly concentrated banking market for deposits, as measured by the Herfindahl-Hirschman Index (HHI),^[17] if the proposed transaction also would increase the HHI by at least 200 points.^[18] Currently, in determining whether a proposal satisfies the Board's delegation criteria for competition in each relevant banking market for both relative deposit market share and market concentration for deposits, the deposits of any credit unions in the market are excluded, and, except for certain applications described below filed under HOLA, the deposits of all thrift institutions in the market are included on a 50 percent weighted basis.^[19]

In analyzing the competitive effects of a merger or acquisition proposal, the Board previously has indicated that certain thrift institutions have become, or have the potential to become, significant competitors to commercial banks.^[20] In some cases involving the formation of a bank holding company, the acquisition by a bank holding company of a depository institution, the merger of a bank holding company with another holding company, or the merger of a bank with another depository institution, the Board has included the deposits of certain thrift institutions in a given market on a 100 percent weighted basis, rather than the standard 50 percent weighting, when competition from those thrift institutions closely approximated competition from a commercial bank.^[21] Such thrifts are referred to as “commercially active thrifts.”

The Board also has found that certain credit unions can serve as competitors to commercial banks in a relevant banking market. The Board has included certain credit unions in its competitive analysis when the credit unions offer consumer banking products, operate street-level branches, and have broad membership criteria.^[22] Credit unions which meet these criteria are referred to as “qualifying credit unions.” Generally, the Board has included the deposits of qualifying credit unions at a 50 percent weight in its analysis, which reflects credit unions' relatively low levels of commercial and small business lending relative to commercial banks. However, the Board has only considered deposits of qualifying credit unions as a factor that can mitigate the anti-competitive effects of a proposal.

The Board has determined that it would be appropriate for the Reserve Banks to act on proposals involving the formation of a bank holding company, the acquisition by a bank holding company of a depository institution, the merger of a bank holding company with another holding company, or the merger of a bank with another depository institution that satisfy the Board's delegation criteria for each affected banking market after the market deposits of commercially active thrift institutions at 100 percent weight and qualifying credit unions at 50 percent weight are included in the initial competitive analysis. Accordingly, the Board is revising the Delegation Rules to permit the Reserve Banks to act upon such proposals, provided the proposals also satisfy the Board's other criteria for delegated action. In so doing, the Board has also determined that it would be appropriate to clarify that its delegation criteria for competition apply to proposals requiring the Board's prior approval under the Bank Merger Act and to proposals involving the acquisition of a thrift by a bank holding company pursuant to section 4 of the BHC Act.

For proposals filed pursuant to HOLA involving the formation of a savings and loan holding company, the merger of savings and loan holding companies, or the acquisition by a savings and loan holding company of a thrift, a modified calculation for relative market share and market concentration for deposits will be used to determine whether the proposal satisfies the Board's delegation criteria for competition. In these cases, the deposits of all thrift institutions in the relevant banking markets will be weighted at 100 percent in the calculation because both before and after consummation of the proposal, the depository institutions involved in the transaction are thrift institutions. Therefore, all thrift institutions in those banking markets compete directly with the involved depository institutions. In these cases, the deposits of all banks in the markets are included at 100 percent weight, because all banks are considered to compete directly with thrift institutions.

The Board has determined that it would be appropriate to codify the Board's previous delegation to the Reserve Banks concerning proposals involving the formation or acquisition of a savings and loan holding company, the merger of savings and loan holding companies, or the acquisition by a savings and loan holding company of a thrift by authorizing the Reserve Banks to act on proposals that satisfy the Board's delegation criteria for each affected banking market, and to include the market deposits of all thrift institutions at 100 percent weight in this analysis. In so doing, the Board has also determined that it would be appropriate to modify this delegation to allow the Reserve Banks to act on such proposals if the proposal would satisfy the Board's delegation criteria for each affected banking market after the market deposits of qualifying credit unions at 50 percent weight are included in the initial competitive analysis.

In all cases, the concurrence of the Board's Division of Research and Statistics will be necessary in order for the Reserve Bank to include the market deposits of commercially active thrifts and qualifying credit unions the higher weights, to ensure that such determinations are consistent with Board precedent.

The delegations in this final rule supersede the Board's prior delegations of authority to the Reserve Banks to approve merger or acquisition proposals involving savings and loan holding companies.

III. Regulatory Analysis

These amendments relate solely to the agency's organization, procedure, or practice. Accordingly, the provisions of the Administrative Procedure Act (APA) regarding notice of proposed rulemaking and opportunity for public participation are not applicable.^[23]

Because no notice of proposed rulemaking is required to be issued, or has been issued, in connection with this rule, it is not a “rule” for purposes of the Regulatory Flexibility Act, and that act, therefore, does not apply.^[24]

In accordance with the Paperwork Reduction Act of 1995 (PRA),^[25] the Board may not conduct or sponsor, and a respondent is not required to respond to, an information collection unless it displays a currently valid Office of Management and Budget control number. The Board has reviewed the proposed rule and has determined that it contains no collections of information as defined in the PRA.

Section 722 of the Gramm-Leach-Bliley Act ^[26] requires the Federal banking agencies to use plain language in all proposed and final rules published after January 1, 2000. The Board has sought to present this rule in a simple and straightforward manner.

This rule is not a “substantive rule” for the purposes of the APA; as such, the act does not require the Board to delay the effective date of the rule.^[27] Accordingly, the amendments are effective July 3, 2019.

List of Subjects in 12 CFR Part 265

• Authority delegations (Government agencies)
• Banks, banking

Authority and Issuance

For the reasons stated in the Supplementary Information, the Board of Governors of the Federal Reserve System amends 12 CFR part 265 as follows:

PART 265—RULES REGARDING DELEGATION OF AUTHORITY

1. The authority citation for part 265 continues to read as follows:

Authority: 12 U.S.C. 248(i) and (k).

2. In part 265, remove all references to “Director of the Division of Banking Supervision and Regulation” and add in their place “Director of the Division of Supervision and Regulation”.

3. In § 265.5 remove and reserve paragraphs (d)(1) and (3).

4. In § 265.7 revise the section heading and paragraphs (d)(1) and (3); remove and reserve paragraphs (d)(4) and (5), (7), and (9) through (13); and add paragraph (e)(7).

The revisions and addition read as follows:

5. In § 265.11:

a. Revise paragraph (a)(10);

b. Add paragraph (a)(17;

c. Revise the paragraph (c) subject heading and paragraph (c)(11)(v);

d. Add paragraph (c)(12);

e. Revise paragraphs (d)(1) through (8) and (10) through (12);

f. Add paragraphs (d)(13) through (15); and

g. Revise paragraph (e)(12).

The revisions and addition read as follows:

Footnotes