Bryan G. Handlos, Esq.
Kutak Rock
The Omaha Building
1650 Farnam Street
Omaha, Nebraska 68102-2186

Dear Mr. Handlos:

This is in response to your letter concerning the application of the revenue restrictions contained in section 225.28(b)(14)(ii) of the Board's Regulation Y (12 C.F.R. 225.28(b)(14)(ii)) to the proposed data processing and transmission activities of [Bank Holding Company].

As indicated in your letter, the lead subsidiary bank of [Bank Holding Company] provides data processing and transmission services to itself, its affiliates, and non-affiliated clients. [Bank Holding Company] is considering a reorganization whereby [Bank] would transfer certain data processing and transmission activities, together with the appropriate equipment, software, and personnel, to a newly formed subsidiary of the holding company ("NewCo"). [Bank Holding Company] proposes, however, that [Bank] maintain its current contractual relationships with certain of its non-affiliated clients. To continue to serve these clients, [Bank] would enter into a subservicing agreement with NewCo. Under this arrangement, [Bank] would continue to bill its clients and receive payment from them for data processing and transmission services, but NewCo would provide the services and would be reimbursed by [Bank] for the services provided.

Under Regulation Y, a company may conduct data processing and transmission activities other than those listed in the regulation if the total annual revenue it derives from non-listed activities does not exceed 30 percent of the company's total annual revenues from all of its data processing and transmission activities. 12 C.F.R. 225.28(b)(14)(ii). You have inquired whether the revenue that NewCo would receive from [Bank] under the subservicing arrangement described above may be included among its total annual revenues derived from data processing and transmission activities for purposes of calculating the 30 percent limit. In the opinion of Board staff, it would be appropriate for NewCo to include this revenue for this purpose because it is directly related to services provided to non-affiliated clients.¹

You also have inquired whether the revenue that NewCo would obtain from [Bank] and other affiliates from providing data processing and transmission services to them may be included in its calculation of total annual revenues for purposes of calculating the 30 percent limit. In the opinion of Board staff, it would not be appropriate to include this revenue for this purpose. Section 225.28 of Regulation Y sets forth a list of permissible nonbanking activities for bank holding companies, including the conditions and limitations under which bank holding companies may engage in these activities. Section 225.22(b) of Regulation Y (12 C.F.R. 225.22(b)) separately authorizes bank holding companies to engage in servicing activities for themselves and their subsidiaries. Combining revenue from servicing activities with revenue from providing data processing and transmission services to non-affiliated clients would result in a revenue limit under section 225.28(b)(14)(ii) that was unrelated to the activities being regulated.

I hope this information is helpful to you. If you have any other questions, you may contact Gordon Miller of my staff at 202/452-2534.

Sincerely,

(Signed) Scott G. Alvarez

Scott G. Alvarez

1. In certain cases, [Bank] may continue to provide certain data processing and transmission services to its non-affiliated clients, such as electronic fund transfers, that NewCo would be unable to provide. Any fees or other compensation earned by [Bank] for services it provides to its non-affiliated clients may not be included as part of the total annual revenue of NewCo for purposes of calculating NewCo's 30 percent limit. Return to text