Bank Holding Company Act

Regulatory Agencies Finalize Changes to Covered Fund Provisions of the Volcker Rule


On July 31, the Office of the Comptroller of the Currency (OCC), the Board of Governors of the Federal Reserve System (FRB), the U.S. CFTC, the Federal Deposit Insurance Corporation (FDIC), and the U.S. Securities and Exchange Commission (SEC) published a final rule amending the regulations that implement Section 13 of the Bank Holding Company Act (the “BHC Act”), commonly known as the Volcker Rule. The final rule, which goes into effect on October 1, is intended to improve and streamline the covered fund provisions of Section 13 of the BHC Act. The final rule aims to accomplish this by, among other things, permitting the following activities: qualifying foreign excluded funds; revising the exclusions from the definition of “covered fund” for foreign public funds, loan securitizations, public welfare investments, and small business investment companies; creating new exclusions from the definition of covered fund for credit funds, qualifying venture capital funds, family wealth management vehicles, and customer facilitation vehicles; modifying the definition of “ownership interest”; and providing that certain investments made in parallel with a covered fund, as well as certain restricted profit interests held by an employee or director, need not be included in a banking entity’s calculation of its ownership interest in the covered fund. OCC Bulletin. Federal Register Final Rule.

Federal Reserve Announces Extension of Conformance Period under Section 13 of the Bank Holding Company Act

On July 7, 2016, the Federal Reserve announced that it will extend until July 21, 2017 the conformance period for banking entities to divest ownership in certain legacy investment funds and terminate relationships with funds that are prohibited under Section 619 of the Dodd-Frank Act, commonly known as the Volcker Rule. The Board had announced in December 2014 that it would make this extension to provide for orderly divestitures and to prevent market disruptions. This is the final of the three one-year extensions that the Board is authorized to grant.

In making this announcement, the Federal Reserve emphasized that: “This extension would permit banking entities additional time to divest or conform only ‘legacy covered fund’ investments, such as prohibited investments in hedge funds and private equity funds that were made prior to December 31, 2013. This extension does not apply to investments in and relationships with a covered fund made after December 31, 2013 or to proprietary trading activities; banking entities were required to conform those activities to the final rule by July 21, 2015.”

The Federal Reserve also noted that the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the Securities and Exchange Commission, and the Commodity Futures Trading Commission: “plan to administer their oversight of banking entities under their respective jurisdictions in accordance with the Board’s conformance rule and this extension of the conformance period.”

Finally, the Board noted that: “upon the application of a banking entity, the Board is permitted under section 619 to provide up to an additional five years to conform investments in certain illiquid funds, where the banking entity had a contractual commitment to invest in the fund as of May 1, 2010.” Release.

Federal Reserve Board Releases FAQs Regarding Certain Bank Transactions

On October 9, the Federal Reserve Board released answers to frequently asked questions regarding the competitive review process for bank acquisitions, mergers, and other transactions under the Bank Holding Company Act, the Bank Merger Act and the Home Owners’ Loan Act. Press Release. FAQs.

Did an Obscure Remark in a Recent Regulatory Publication Signal a New Interpretation of the Anti-Tying Rules?

In 2003, the Federal Reserve released its proposed interpretation of the anti-tying provisions of the Bank Holding Company Act Amendments, in which it stated that market power and anti-competitive effects were not necessary elements of an illegal tying arrangement.  Despite substantial commentary on the Federal Reserve’s proposed interpretation from financial institutions and other regulators, including the Department of Justice, the Federal Reserve has not revised its proposed interpretation of the anti-tying provisions of the BHC Act.  This alert discusses a recent regulatory publication raising the possibility that the Federal Reserve may be revisiting its earlier stance.  For more information, please click here.

Fed Request for Comments on “Predominantly Engaged in Financial Activities”

On April 2, the Fed requested comment on a proposed amendment to its February 11 notice of proposed rulemaking to establish requirements for determining whether a company is “predominantly engaged in financial activities“.  Based on comments received on the NPR, the amendment is intended to clarify the definition of financial activities for purposes of Title I.  Commenters to the February 11 proposal asked whether conditions imposed under the Bank Holding Company Act and regulations should be considered in defining financial activities under Title 1.  Comments must be submitted by May 25.  Fed Release. 
Request for Comment. 

Fed Approves Capital One Acquisition of ING

On February 14, pursuant to Section 4(j) of the Bank Holding Company Act (BHCA), the Fed issued an order approving the acquisition by Capital One Financial Corporation of ING Bank, fsb.  Of particular significance is the manner in which the Fed implemented the new requirement added to Section 4(j) of the BHCA by Section 604(d) of the Dodd-Frank Act.  It requires the Fed to consider “risk to the stability of the United States banking or financial system” to the list of possible adverse effects that the Fed must weigh against any expected public benefits in considering proposals under Section 4(j).  The February 14 order provides guidance as to certain types of transactions that would not likely present financial stability concerns because they likely would have only a de minimis impact on an institution’s “systemic footprint.”  The order provides three examples of such transactions: (i) an acquisition of less than $2 billion in total assets; (ii) a transaction resulting in a firm with less than $25 billion in total assets; and (iii) a corporate reorganization, absent evidence that the transaction would result in a significant increase in interconnectedness, complexity, cross-border activities, or other risk.  Fed Order.