Federal Reserve Board seeks comments on determining control of a banking organization

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The Federal Reserve Board is seeking public comment on a proposal that would increase the transparency of the board’s rules for determining control of a banking organization.

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The proposal says that if a company has control over a banking organization, the company generally becomes subject to the board’s rules and regulations. Further, the proposal would establish a comprehensive regulatory framework for control determinations and request comment on the framework.

“Providing all stakeholders with clearer rules of the road for control determinations will responsibly reduce regulatory burden,” Fed Board Chair Jerome Powell said. “As a result, it will be easier for banks, particularly community banks, to raise capital to support lending and investment.”

The proposal lays out several factors that the board will use to determine if a company has control over a bank. Those factors include the company’s cumulative 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. It clearly outlines what combination of those factors would and would not trigger control.

The proposal is designed to reduce complexity and burden for banking organizations and their investors while providing clarity so stakeholders can better understand the control rules.

“The board’s control framework has developed over time through a Delphic and hermetic process that has generally not benefited from public comment,” Vice Chair for Supervision Randal Quarles said. “This proposal would place substantially all of the Board’s control positions into a comprehensive public regulatory proposal and allow public comment on those positions to improve their content and consistency.”

Comments will be accepted for 60 days after publication in the Federal Register.

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