FRB: Supervisory Letter SR 97-12 (APP) on streamlined section 3 procedures for well-capitalized and well-managed banking organizations -- April 24, 1997

TO THE OFFICER IN CHARGE OF SUPERVISION
AT EACH FEDERAL RESERVE BANK

SUBJECT:

Streamlined Section 3 Procedures for Well-Capitalized and Well-Managed Banking Organizations

Purpose and Scope. The final rule adopting changes to Regulation Y¹ provides a streamlined process for reviewing proposals from well-run bank holding companies under section 3 of the Bank Holding Company Act ("BHC Act"). See section 225.14 of Regulation Y (12 CFR 225.14). These procedures reduce the amount of information required to be provided by an applicant and permit the System to take expedited action on proposals meeting the qualifying criteria set forth in the regulation.

Two important principles guided the revisions to Regulation Y and, in particular, the development of the streamlined section 3 procedures. First, a well-run bank holding company that meets objective and verifiable measures for each of the criteria set forth in the regulation should be able to expect little burden or delay from the approval process for relatively small or routine acquisitions unless special circumstances demonstrate that a closer review is warranted. Second, the notice process for relatively small or routine acquisitions should focus on an analysis of the effects of the specific proposal and should not become a vehicle for comprehensively evaluating and addressing supervisory and compliance issues that can be more effectively addressed in the supervisory process. Accordingly, the review under the streamlined procedures should focus on whether the qualifying criteria have been met. If, however, a proposal requires a closer review of any financial, managerial, competitive, convenience and needs or other matter related to the factors in section 3 of the BHC Act, the proposal should be processed under the normal 30/60 day procedures.²

The streamlined section 3 procedures in section 225.14 of Regulation Y may be followed in connection with applications to acquire shares, assets, or control of a bank, or a merger or consolidation between bank holding companies.³ The streamlined section 3 procedures also may be followed in connection with notices to acquire a savings association, provided that the proposal meets all the criteria for expedited action as if the savings association were a bank.⁴

This letter explains the requirements of the streamlined procedures, the criteria that should be reviewed, and the information that must be provided by the applicant. This letter also provides guidance for resolving various issues that may arise under the streamlined section 3 procedures.

Proposals that require approval under both section 3 and section 4 of the BHC Act should be processed under the applicable section 3 procedure (i.e., either the streamlined procedures or the normal 30/60 day procedures). The Reserve Bank should notify the applicant in writing immediately after receipt of the application that the section 4 portion of the proposal will be processed under the section 3 procedures, and should describe the nonbanking companies to be acquired in the Federal Register notice.

To be successful in reducing regulatory burden under the new procedures, Reserve Bank and Board staffs should make every effort to determine as early as possible whether a proposal qualifies for the streamlined procedure, and whether an issue is raised that may warrant a more in-depth review of the proposal or the institutions involved. The streamlined procedures clearly contemplate that any proposal that meets the qualifying criteria may nevertheless be processed under the normal 30/60 procedures if issues are raised. It is essential, however, that such issues be identified early, and that once identified, the proposal quickly be transferred to the 30/60 day procedures. The Reserve Banks are encouraged to discuss potential issues and procedural questions with Board staff at the outset in reviewing proposals under the streamlined procedures so that a determination may be made as soon as practicable regarding whether the 30/60 day processing procedures should be used.

The streamlined section 3 procedures continue the Board's policy of publishing notice of a proposal for public comment. The time frame for acting on a proposal under the procedures depends on the expiration of the public comment period. It is therefore important that publication of the proposal be timely and accurate in order for the streamlined procedures to be effective.

The public comment period may also produce timely and substantive written comments from interested persons. The final rule adopting Regulation Y stated the Board's intent that the vast majority of comments which, prior to April 21, 1997, were considered by the Board would continue to be considered substantive and would be reviewed under the 60 day procedure for Board action. Guidance on determining when comments are timely and substantive is provided in this letter and in a separate letter on protested applications. (See SR letter providing guidance on protested proposals.) As discussed in more detail in the guidance, Reserve Banks are encouraged to consult with the Board's Legal Division if comments on a proposal are received.

Qualifying Criteria
The streamlined procedures are available only if a proposal clearly meets all of the following criteria.⁵
1. Financial criteria -- The financial criteria must be met by the acquiring bank holding company before and immediately after the proposed transaction.⁶
  1. The acquiring bank holding company must be well-capitalized.⁷
    Definition of well-capitalized -- A bank holding company is well-capitalized for purposes of meeting the qualifying criteria if:
    
              (a) On a consolidated basis, the bank holding company maintains a total risk-based capital ratio of 10.0 percent or more and a Tier 1 risk-based capital ratio of 6.0 percent or more; and
              (b) The bank holding company is not subject to any written agreement, order, capital directive, or prompt corrective action directive issued by the Board to meet and maintain a specific capital level for any capital measure.
    
    Foreign banking organizations -- The following standards apply for determining whether a foreign banking organization is well-capitalized for purposes of meeting the qualifying criteria:
    
              (a) If the home country supervisor⁸ of a foreign banking organization has adopted capital standards consistent in all respects with the Capital Accord of the Basle Committee on Banking Supervision ("Basle Accord"), the foreign banking organization may:
    (b) If the home country supervisor has not adopted capital standards consistent in all respects with the Basle Accord, the foreign banking organization is considered well-capitalized only if the foreign banking organization obtains a determination from the Board, in advance of filing an application, that its capital is equivalent to the capital that would be required for a U.S. banking organization to be considered well-capitalized. These determinations will be made on a case-by-case basis. Requests by foreign banking organizations for such determinations should be submitted in writing to the Director, Division of Banking Supervision and Regulation.
    
    (c) The regulation requires the provision of pro forma financial information and capital ratios based on the most recent quarter. Unless recent existing consolidated capital ratios are provided by the foreign banking organization or are otherwise available to the System, the Reserve Bank will need to estimate the capital ratios of the foreign banking organization by using the pro forma capital and balance sheet information that is to be included in the application. In these instances, the Reserve Bank should compare the financial information used in calculating the capital ratios with the capital ratios reported by the foreign banking organization in its most recent Y-7 submission and any other more recent data available to the System. If the Reserve Bank believes that the reported data and the data submitted in the application may not accurately reflect the current consolidated capital position of the foreign banking organization, the Reserve Bank may request additional information. If the current consolidated capital position of the foreign banking organization does not appear to meet the well-capitalized criterion, the application should be processed under the 30/60 day procedures.
    
    Small bank holding companies -- A bank holding company that, on a pro forma basis, will continue to have consolidated assets of less than $150 million and that is subject to the Small Bank Holding Company Policy Statement in Appendix C of Regulation Y is well-capitalized for purposes of meeting the qualifying criteria if it meets the requirements for expedited/waived processing contained in the Policy Statement.
  2. The lead insured depository institution of the acquiring bank holding company must be well-capitalized.
    
    Definition of well-capitalized insured depository institution -- An insured depository institution is well-capitalized if the institution maintains at least the capital levels required to be "well-capitalized" under the capital adequacy regulations or guidelines applicable to the institution that have been adopted by the appropriate federal banking agency ("AFBA") for the institution.⁹ Unlike the definition of "well-capitalized" that applies to a bank holding company, the definition applicable to insured depository institutions typically includes a leverage component as well as risk-based capital requirements.
    
    Definition of lead insured depository institution -- The lead insured depository institution is the largest insured depository institution controlled by the bank holding company as of the quarter ending immediately prior to the proposed filing, based on a comparison of the average total risk-weighted assets controlled during the previous 12-month period by each insured depository institution subsidiary of the holding company.¹⁰
    
    Foreign banking organizations -- The following principles apply for determining whether the lead insured depository institution for a foreign banking organization is well-capitalized for purposes of meeting the qualifying criteria:
    
              (a) A U.S. branch or agency of a foreign banking organization is considered to be an insured depository institution. The lead insured depository institution for a foreign banking organization that maintains branches (insured and uninsured), agencies, and subsidiary insured depository institutions in the United States is the individual branch, agency, or subsidiary insured depository institution that is largest in terms of average risk-weighted assets.
    
              (b) U.S. branches and agencies of foreign banking organizations are not required to report assets on a risk-weighted basis. If a foreign banking organization does not provide the actual assets of its U.S. branches and agencies on a risk-weighted basis in its application, staff should employ the conservative estimation methodology shown in the attachment to this letter to identify the lead insured depository institution of the foreign banking organization. In any instance where the estimation methodology reveals a close determination, the Reserve Bank should contact the foreign banking organization to obtain more definitive information.
    
              (c) A U.S. branch or agency of a foreign banking organization is deemed to have the same capital ratios as the consolidated foreign banking organization as determined under the well-capitalized criterion discussed above.
  3. Well-capitalized insured depository institutions must control at least 80 percent of the aggregate total risk-weighted assets of insured depository institutions controlled by the acquiring bank holding company.
    
    Calculation of the 80 percent test -- This test identifies insured depository institutions that comprise 80 percent of the risk-weighted assets held by insured depository institutions controlled by the holding company. Nonbanking subsidiaries that are not insured depository institutions are not included in calculating compliance with this criterion. For example, a bank holding company with one subsidiary bank that controls $8 billion in risk-weighted assets, with six other subsidiary banks that each control $200 million in risk-weighted assets, and with uninsured nonbanking subsidiaries with $8 billion in risk-weighted assets would qualify under this criterion if the $8 billion bank is well-capitalized.
    
    Foreign banking organizations -- As noted above, all branches, agencies and subsidiary insured depository institutions operated in the United States by a foreign banking organization must be considered in determining qualification under this criterion.¹¹ If the Reserve Bank has concerns that this criterion is not satisfied using the conservative estimation methodology in the attachment to this letter, the Reserve Bank should contact the foreign banking organization to obtain more definitive information.
  4. No insured depository institution controlled by the acquiring bank holding company or foreign banking organization may be undercapitalized.
2. Managerial criteria -- The managerial criteria must be met at the time of the transaction.¹²
  1. The acquiring bank holding company must be well-managed.
    
    Definition of well-managed -- The acquiring bank holding company must have received: (a) a composite BOPEC rating of 1 or 2 at the most recent inspection or subsequent review;¹³ and (b) a satisfactory rating for management and for compliance, where these ratings are given.
    
    Foreign banking organizations -- A foreign banking organization is deemed to be well-managed if the combined operations of the foreign banking organization in the United States have received a rating of 1 or 2 (derived from the Summary of Condition) at the most recent annual assessment.
    
    If a bank holding company or a foreign banking organization has not received a rating, see the guidance provided in paragraph (B)(5) below.
  2. The lead insured depository institution of the acquiring bank holding company must be well-managed.¹⁴
    
    At its most recent examinations for safety and soundness and consumer compliance or subsequent review by the AFBA, the lead insured depository institution must have received:  (a) a composite rating of 1 or 2; and (b) at least a satisfactory rating for management and for consumer compliance, where these ratings are given.
    
    Foreign banking organizations -- The U.S. branch or agency of a foreign banking organization that meets the lead insured depository institution test must have received:
    
              (a) A supervisory composite rating of 1 or 2 under the ROCA rating system;
    
              (b) A compliance rating of 1 or 2 (i.e., the "C" component in the ROCA rating must be a 1 or 2); and
    
              (c) A consumer compliance rating of 1 or 2, where these ratings are given.
  3. Insured depository institutions that control at least 80 percent of the total risk-weighted assets of insured depository institutions controlled by the acquiring bank holding company must be well-managed.
    
    The 80 percent test for the well-managed criteria should be calculated in the same manner as discussed in paragraph (A)(3) above for the well-capitalized criteria.
    
    At the most recent examinations for safety and soundness and consumer compliance or subsequent reviews by the AFBA, the insured depository institutions must have received:  (a) a composite rating of 1 or 2; and (b) at least a satisfactory rating for management and for consumer compliance, where these ratings are given.
    
       Foreign banking organizations -- U.S. branches and agencies of a foreign banking organization included in the 80 percent test must have received:¹⁵
    
              (a) Supervisory composite ratings of 1 or 2 under the ROCA rating system;
    
              (b) Compliance ratings of 1 or 2 (i.e., the "C" component in the ROCA rating must be a 1 or 2); and
    
              (c) Consumer compliance ratings of 1 or 2, where these ratings are given.
    
    As noted above, all branches, agencies and subsidiary insured depository institutions operated in the United States by a foreign banking organization must be considered in determining qualification under this criterion.¹⁶ If the Reserve Bank has concerns that this criterion is not satisfied using the conservative estimation methodology in the attachment to this letter, the Reserve Bank should contact the foreign banking organization to obtain more definitive information.
  4. No insured depository institution controlled by the acquiring bank holding company may have received one of the two lowest composite ratings at the later of the institution's most recent safety and soundness examination or subsequent review by the AFBA for the institution.
    
    There is one exception to this criterion.
    
    Any insured depository institution that has been acquired by the bank holding company during the 12 month period preceding the date on which the application is filed may be excluded from this criterion (but not from the 80 percent criterion in paragraph (B)(3) above) if: (a) the bank holding company has developed a plan acceptable to the AFBA for the insured depository institution to restore the capital and management of the institution; and (b) all insured depository institutions that are excluded, in the aggregate, control less than 10 percent of the aggregate total risk-weighted assets of all insured depository institutions controlled by the acquiring bank holding company.
  5. If a company or insured depository institution has not received an inspection or examination rating, the Reserve Bank, in consultation with Board staff and based on all available information, may determine whether the organization is well-managed.
    
    Applying the well-managed criterion in the absence of an inspection or examination rating requires the exercise of reasonable discretion in light of all available information. For example, the Reserve Bank could reasonably conclude, in the absence of any adverse information, that a shell bank holding with no debt or activities is well-managed if its subsidiary bank is deemed to be well-managed and in satisfactory financial condition. The Reserve Bank also could support a determination that a newly formed organization is well-managed if management's prior record at other insured depository institutions is satisfactory.
    
    In consulting with Board staff, the Reserve Bank should provide information supporting its position as to whether the organization should be considered well-managed. This should be done as early in the processing period as possible.
3. Convenience and needs criteria
  1. The record must indicate that the proposed transaction would meet the convenience and needs of the community standard in section 3 of the BHC Act.
    
    This criterion is intended to encompass the same type of review conducted by Reserve Banks of the convenience and needs factor in delegated cases considered under the 30 day procedure.
    
    For example, the Reserve Bank should consider the Community Reinvestment Act ("CRA") ratings of the organizations involved in the transaction and, in the case of an interstate transaction, the applicant's record of compliance with applicable state community reinvestment laws. In addition, the Reserve Bank should weigh information provided by the applicant, and other information available to the System, in considering the effect of the transaction on the convenience and needs of the community.
    
    As part of this review, the Reserve Bank also must consider the information provided by the applicant regarding steps taken to improve the CRA performance of subsidiaries that have received less than satisfactory ratings. The amount of information the applicant should provide in the application will depend on the nature of the matters to be addressed. The review also should assure the Reserve Bank that the relevant institutions are working with the AFBA to address weaknesses.
    
    A proposal by an applicant that has a history of less than satisfactory CRA performance, such as two or more consecutive "needs to improve" ratings at one insured depository institution or alternating "needs to improve" ratings at several institutions, may warrant review under the 30/60 day procedures.
    
    If the applicant proposes to acquire an insured depository institution with less than satisfactory CRA ratings, the Reserve Bank should consider any steps to be taken by the applicant to address weaknesses in the CRA performance record of the target institution.
  2. CRA ratings -- At the time of the transaction, the lead insured depository institution¹⁷ of the acquiring bank holding company and insured depository institutions that control at least 80 percent of the total risk-weighted assets of insured institutions controlled by the holding company must have received satisfactory or better composite ratings at their most recent examinations under the CRA.
    
    The 80 percent test for the CRA criteria should be calculated in the same manner as discussed in paragraph (A)(3) above for the well-capitalized criteria.
    
    Foreign banking organizations -- A U.S. branch or agency of a foreign banking organization receives a CRA rating, and therefore is counted for purposes of this provision, only if it is an FDIC-insured branch in accordance with section 6 of the International Banking Act or a branch subject to CRA requirements as a result of an interstate acquisition under section 107(f) of the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994.
4. Competitive criteria
  1. HHI and deposit screen -- Without regard to any divestitures proposed by the acquiring bank holding company, the acquisition may not cause the insured depository institutions controlled by the acquiring bank holding company to control in excess of 35 percent of market deposits in any relevant banking market, or the Herfindahl-Hirschman index to increase by more than 200 points in any relevant banking market with a post-acquisition index of at least 1800.
    
    The competitive criteria are not intended to alter the scope of review currently conducted by the Reserve Bank under delegated authority for section 3 proposals other than to require that the transaction meet the screens without consideration of divestitures. The Reserve Bank should consult with Board staff on issues regarding the relevant market or the competitive effects of a proposal. Transactions involving a divestiture should be reviewed under the 30/60 day procedures.
  2. Department of Justice ("DOJ") review -- In addition, the DOJ must not have indicated to the Board that consummation of the transaction is likely to have a significantly adverse effect on competition in any relevant banking market.
    
    The Reserve Bank should consult with Board staff to determine whether the DOJ has any objections to the proposal, and whether the proposal will be subject to the 15 or 30 day waiting period. If the DOJ has not made its determination by the time System action is required, the Reserve Bank may approve the proposal, subject to the 30 day waiting period.
5. Size of acquisition criteria
  1. Limited growth -- In the case of an acquisition, the sum of the aggregate risk-weighted assets to be acquired in the proposal and the aggregate risk-weighted assets acquired by the acquiring bank holding company in all transactions approved during the previous 12 months under the streamlined procedures governing acquisitions of banks (section 225.14) and the streamlined procedures governing acquisitions of nonbanking companies (section 225.23) may not exceed 35 percent of the consolidated risk-weighted assets of the acquiring bank holding company at the beginning of the 12 month period.
    
    Transactions that were approved under the 30/60 day procedures are excluded in calculating compliance with the criterion. The 12 month period is a rolling period that looks back from the date that each notice/application is filed under the streamlined procedures and is not restarted from the date that a transaction is approved under the 30/60 day procedures.
    
    Small bank holding companies -- The 35 percent limitation does not apply if, immediately following consummation of the proposed transaction, the consolidated risk-weighted assets of the acquiring bank holding company are less than $300 million.
  2. Size limitation on individual transactions -- The total risk-weighted assets that the holding company proposes to acquire may not exceed $7.5 billion.
6. Other qualifying criteria
  1. No supervisory actions -- During the 12 month period ending on the date on which the bank holding company proposes to consummate the proposed transaction, no formal administrative order, including a written agreement, cease and desist order, capital directive, prompt corrective action directive, asset maintenance agreement, or other formal enforcement action is or was outstanding against the bank holding company or any insured depository institution subsidiary of the holding company, and no formal administrative enforcement proceeding involving any such enforcement action, order, or directive is or was pending.
    
    An administrative enforcement action is outstanding once it is issued or executed. An administrative enforcement proceeding is pending during the period if the bank holding company or insured depository institution is considering agreeing to the formal action or is seeking to contest the issuance of an order or to appeal an already issued order. The Reserve Bank should consult with the appropriate AFBA of the insured depository institution as needed to confirm compliance with this criterion.
    
    This criterion focuses on formal actions, and a bank holding company is not automatically disqualified based on an informal action, such as a memorandum of understanding or letter agreement. The Reserve Bank or Board may, nonetheless, notify a bank holding company that the 30/60 day procedures should be followed if the circumstances surrounding a memorandum of understanding, letter agreement, or other informal action indicate that more in-depth review of the proposal, or applicant or company involved, is warranted.
  2. The proposal must be permissible under the informational sufficiency or comprehensive home country supervision standards set forth in section 3(c)(3) of the BHC Act.
    
    The Reserve Bank should consult with Board staff, as necessary, to confirm that the Board has previously determined that the foreign banking organization is subject to comprehensive supervision or regulation on a consolidated basis by its home country supervisor. If the foreign banking organization has not been the subject of a consolidated supervision determination by the Board, the proposal must be processed under the 60 day procedures.
  3. The proposal must be permissible under the interstate banking provisions set forth in section 3(d) of the BHC Act.
    Reserve Bank staff should prepare an analysis of the laws of the relevant states and consult with the Board's Legal Division if an interstate acquisition or merger for the particular states involved in the proposal has not been previously approved. The analysis should take into consideration national and state deposit limitations and state minimum age requirements. As noted above, section 3(d) also requires consideration of the applicant's compliance with state community reinvestment laws.
  4. The Board or appropriate Reserve Bank has received no timely and substantive written comment other than a comment that supports approval of the proposal.
    
    A timely and substantive written comment other than a comment supporting approval would require that the proposal be processed under the 60 day procedure. An untimely or nonsubstantive comment would not ordinarily disqualify the proposal from the streamlined procedures.¹⁸
    
    A comment is timely if, on or before the last day in the comment period, it is (a) mailed first class, properly addressed, and postmarked, (b) entered into an express delivery system for the proper destination, or (c) received by the Board or Reserve Bank.
    A comment generally is considered substantive unless it relates to individual customer complaints, previously decided issues, minority shareholder rights issues, frivolous or unsubstantiated claims, or issues that are not related to factors in section 3 of the BHC Act that could be reviewed by the Reserve Banks. See SR letter on protested proposals for guidance in identifying, reviewing, and responding to these types of comments.
  5. The Board or Reserve Bank has not notified the acquiring bank holding company, before action is required under the streamlined procedures, that an application is required to permit closer review of any financial, managerial, competitive, convenience and needs, or other matters related to the statutory factors that the Board must consider.
    
    This criterion underscores a key aspect of the streamlined procedures, which is the recognition that a proposal can meet all of the qualifying criteria and nevertheless require a closer review under the 30/60 day procedures. For example, an issue may be raised if the acquiring bank holding company has experienced significant problems absorbing recent acquisitions. Information from the AFBA or the home country supervisor of a foreign banking organization may raise issues regarding the financial or managerial strength of the organization that are not reflected in the organization's most recent rating. In addition, other information available to the System may warrant a closer review of an organization or individual involved in the proposal. Moreover, the structure of a transaction may raise a novel interpretative or policy issue under the BHC Act or may be the first proposal considered under a new law.
    
    If any issue is raised by a proposal that requires a closer review, the application should be processed under the 30/60 day procedures. Identifying these issues early in the process will preserve the goals of the streamlined procedures without imposing an undue burden on the applicant.
Procedures
1. Filing Requirements -- An application under the streamlined procedures must be in writing, and contain the information listed below. An application is deemed to be "filed" with the Reserve Bank the day it is received if received during normal business hours, or the next business day if received after normal business hours. The applicant should ensure that non-public information is provided in the confidential portion of the proposal. In light of the expedited nature of the streamlined procedures, draft applications should not be accepted.
  1. Certification that all criteria are met -- The form of certification may be a single sentence in the application in which the applicant certifies that all the criteria in section 225.14 of Regulation Y (12 CFR 225.14) are satisfied. The certification may be provided by anyone with knowledge and authority to bind the acquiring bank holding company, including legal counsel for or executive officers of the acquiring holding company. Certification by the board of directors of the holding company is acceptable, but not necessary.
  2. Description of, and parties to, the transaction -- The description should include identification of the companies involved, the banking markets affected, the structure of the transaction, and any changes in the corporate structure of the applicant that are expected to result from the transaction. If the proposal involves the acquisition of a savings association eligible for processing under these procedures, the applicant also should provide a description of the activities conducted by the savings association and its subsidiaries. This information should be reviewed to determined whether the activities of the savings association are consistent with the BHC Act.
  3. Convenience and needs information -- The bank holding company must provide a description of the effect of the transaction on the convenience and needs of the communities to be served. In addition, if any insured depository institution subsidiary does not have at least a satisfactory CRA performance rating at the time of the transaction, the bank holding company must provide a description of the actions being taken to improve the CRA performance of the insured depository institution(s). A bank holding company may satisfy this latter requirement by providing copies of information prepared for the AFBA of the relevant institution, or by providing copies or summaries of responsive documents that were originally prepared for other purposes.
  4. Evidence of publication -- The acquiring bank holding company must provide evidence that notice of the proposal has been published in a newspaper of general circulation in the form and locations specified in section 262.3 of Regulation Y (12 CFR 262.3) and containing the information specified in section 225.16 of Regulation Y (12 CFR 225.16).
    
    The newspaper notice must be published no more than 15 calendar days before and no later than 7 calendar days following the date that the application is filed with the appropriate Reserve Bank.
    
    All proposals will be published in the Federal Register and listed in the Board's new publication for acquisitions proposals (the H.2A). The acquiring bank holding company may request advanced publication in the Federal Register as discussed in paragraph (D) below.
  5. Financial information
    1. If the acquiring bank holding company has consolidated assets of $150 million or more, the bank holding company must provide:
      1. An abbreviated consolidated pro forma balance sheet as of the most recent quarter showing credit and debit adjustments that reflect the proposed transaction;
      2. Consolidated pro forma risk-based capital ratios for the acquiring bank holding company as of the most recent quarter; and
      3. A description of the purchase price and the terms and sources of funding for the transaction.
    2. If the acquiring bank holding company has consolidated assets of less than $150 million, the bank holding company must provide:
      1. A pro forma parent-only balance sheet as of the most recent quarter showing credit and debit adjustments that reflect the proposed transaction;
      2. A description of the purchase price, the terms and sources of funding for the transaction; and
      3. The sources and schedule for retiring any debt incurred in the transaction.
    3. Pro forma total-risk-weighted assets, total assets, Tier 1 capital, and total capital for each insured depository institution whose total risk-weighted assets, total assets, Tier 1 capital or total capital would change upon consummation of the proposal.
  6. Director and senior executive officer information -- If the acquiring bank holding company has consolidated assets of less than $300 million, the holding company must provide a list of and biographical information regarding any directors or senior executive officers of the resulting bank holding company that are not directors or senior executive offices of the acquiring bank holding company or of a company or institution to be acquired.¹⁹
    
    This information should be reviewed to determine whether those individuals are known to banking for purposes of assessing managerial factors, and may indicate a need to conduct name checks.
  7. Competitive information -- The acquiring bank holding company must provide the market indexes for each relevant banking market reflecting the pro forma effect on competition resulting from the transaction.
2. Waiver of unnecessary information -- The Reserve Bank may reduce the financial and managerial and competitive information requirements in paragraphs (A)(5), (6), and (7) above if the information is clearly not needed to assess compliance with the qualifying criteria. For example, a waiver of some of the financial information may be granted if the size and scope of a proposed transaction is clearly insignificant relative to the size and scope of the acquiring bank holding company's existing operations. Waivers of information do not need to be made in writing, though it is advisable that the Reserve Banks document the reasons for granting the waivers. If information is waived, the Reserve Bank must assure that information is contained in the record (e.g., the same information was obtained from another source, the information was already obtained by the Reserve Bank from the applicant in a previous transaction, or sufficient alternate information was provided by applicant) to assure that the qualifying criteria can be verified.
3. Additional information for Change in Bank Control Act ("CIBC Act") notices -- In some cases, a bank holding company acquisition may result in a person or group of persons acquiring control of the bank holding company for purposes of the CIBC Act. Any person or group of persons proposing to acquire control of the acquiring bank holding company for purposes of the CIBC Act or section 225.41 of Regulation Y (12 CFR 225.41) may fulfill the notice requirements of the CIBC Act and section 225.43 of Regulation Y (12 CFR 225.43) by providing, as part of the section 3 application by the bank holding company, identifying and biographical information required in paragraph (6)(A) of the CIBC Act (12 USC § 1817(j)(6)(A)), as well as any financial or other information required by the Reserve Bank under section 225.43 of Regulation Y (12 CFR 225.43). See forthcoming supervisory letter regarding revisions to Regulation Y that relate to the Change in Bank Control Act.
  
  A person or group of persons that chooses not to provide this information as part of the section 3 filing must separately comply with the prior notice requirements under the CIBC Act. In these cases, the Reserve Bank should notify the applicant of this requirement and the potential impact on the ability of applicant to consummate its proposal in a timely fashion. If it appears that an issue would be raised by the filing of a CIBC Act notice by the persons involved, the Reserve Bank should notify the applicant that the transaction will be reviewed under the 30/60 day procedures.
4. Advance Federal Register publication -- The applicant may request that, during the 15 day period prior to filing a notice, the Board publish notice of its proposal in the Federal Register. A request for advance publication must be in writing and provide all relevant information prescribed by the Board for Federal Register publication, and the requested publication date.
  
  Because notice of the application may be published up to 15 days prior to filing, and it usually takes 7 business days to process a request for publication, applicants may submit requests for publication in advance of the requested publication date. See forthcoming supervisory letter regarding publication of bank holding company and change in control applications and notices. The Reserve Bank should verify receipt by the Board's Legal Division of a Federal Register notice in advance of filing.
Reserve Bank Processing
1. Receipt of application -- When an application is filed under the streamlined procedures, the Reserve Bank should immediately on receipt forward two copies of the application to the Board's Clearing Unit, and the proposed Federal Register notice to the Board's Legal Division (unless previously forwarded in advance of filing). See SR letter regarding procedures for making regulatory filings available to requesters. Because proposals to be acted on by the Secretary of the Board are eligible for processing under the streamlined procedures, the Reserve Bank should indicate in its transmission to the Clearing Unit when a proposal will require processing by Board staff.
  
  In addition, within the first business day following receipt, the Reserve Bank should:
  1. Provide notice of the proposal, including a copy of the filing, to the primary banking supervisor of the insured depository institution(s) to be acquired.²⁰ Such notice should indicate that the primary banking supervisor has 30 calendar days from the date of the letter giving notice (or such shorter time as agreed to by the primary banking supervisor) in which to comment. Because of potential delay if there is an objection, the Reserve Bank should contact the primary banking supervisor whenever possible prior to the end of processing to determine whether the supervisor intends to comment on the proposal.
  2. Provide notice of the proposal, including a copy of the filing, to the DOJ, requiring acknowledgement of receipt.
2. Determination that criteria are met
  1. Determining that criteria are met -- Promptly following receipt of a notice for streamlined processing, staff should determine, based on information available to the System, whether all of the qualifying criteria are met. Even if the bank holding company meets the qualifying criteria for expedited processing, the Reserve Bank may nevertheless require the filing of an application under the 30/60 day process if the proposal raises a supervisory, competitive, legal, or other issue as discussed above that warrants in-depth review.
  2. Failure to meet qualifying criteria -- If the application does not meet the qualifying criteria, or if it raises a supervisory, competitive, legal or other concern, an application under the 30/60 day procedures is required. In this case, the Reserve Bank should notify the bank holding company in writing (and by telephone if appropriate) as soon as possible that an application under the 30/60 day procedures will be required. The notice should provide the same information that is currently provided to applicants when applications are transferred from delegated action to Board action.
    
    For applications that have been transferred from the streamlined to the 30/60 day processing schedule, Reserve Bank and Board staff should determine whether information from the applicant supplementing the streamlined filing is necessary to address relevant issues. Reserve Bank or Board staff may request the additional information at the time the applicant is notified of the processing change, or at any time during the processing period.
    
    The proposal shall be considered to have been accepted under the 30/60 day procedures as of the date that the original application was filed under the streamlined procedures.
  3. Incomplete applications -- The Reserve Bank may return an application as incomplete within 3 business days of filing if the application does not contain all the information required by Regulation Y for notices under the streamlined procedures.
  4. Supplemental information -- In general, the acquiring bank holding company will not be expected to provide additional information to ensure that the qualifying criteria are satisfied, other than the information required above. If, however, the Reserve Bank determines that more information is necessary to determine whether the application meets the qualifying criteria, the Reserve Bank may make a specific request for supporting information. It is expected that such requests would be rare, and that processing under the expedited time periods in the streamlined procedures generally would not be tolled, even with the consent of the applicant.
3. Extension of the comment period
  1. Requests for extension of comment period -- The Board (but not the Reserve Banks) may either grant or deny a written request by a particular commenter to extend the comment period. In particular, the Board may grant an extension of up to 15 days to a requester that has made a timely request for an application that has not been made available, and will grant a joint request by an interested member of the public for an extension for a reasonable period of time for a purpose related to the section 3 factors. The Reserve Bank should send all requests to the Board's Legal Division immediately on receipt.
    
    In considering a request for an extension, the Board will consider the specific reasons given by the requester for being unable to file a timely comment. For example, if a requester contends that more time is required to analyze a proposal, the Board will take into account when the proposal was announced, when the regulatory filing was made available to the public, and when the request for the regulatory filing was made. Delays beyond the time normally provided in answering a timely and reasonable request for publicly-available information or in providing information in response to timely comments or the System's request for information also will be considered in determining whether to grant an extension of the comment period.
    
    Applicants also are expected to provide responses to requests for information in accordance with the Board's Rules of Procedures.
  2. Effect of extension of comment period -- An extension of the comment period would not disqualify an otherwise qualifying proposal from consideration under the streamlined procedures. That is, the Reserve Bank may act on a proposal under the streamlined procedures within 3 to 5 business days after close of an extended comment period if all of the criteria for expedited processing are met at the time action is taken.
4. Action on proposals within 3 to 5 business days after comment period
  1. Action required -- Within 5 business days after the close of the public comment period, the Board or the appropriate Reserve Bank must act on a proposal or notify the bank holding company that an application under the 30/60 day procedures is required. The Board or Reserve Bank may not approve any proposal prior to the third business day following the close of the public comment period, unless an emergency exists that requires expedited or immediate action. In exceptional circumstances, the Reserve Bank may need additional time for acting on a notice. The Board (but not the Reserve Banks) may extend the period for action by up to 5 business days. The Reserve Bank should contact Board staff immediately in such instances.
  2. Approval letter -- The Reserve Bank should include the following information in its approval letter to the applicant:
    1. Waiting period -- Consummation of an approved transaction under the expedited procedures is subject to the applicable 15- or 30-day waiting period for antitrust review.
    2. Conditional approval -- Approval of the transaction is subject to the condition that the primary banking supervisor not recommend in writing to the Board disapproval of the proposal prior to the end of the 30-day supervisory comment period. If the primary banking supervisor recommends such disapproval before the expiration of the comment period, any approval given by the Reserve Bank or the Board shall be revoked and, if required by section 3(b) of the BHC Act, the Board will order a hearing.

Please distribute this letter to all personnel involved in the processing of applications and notices. If there are any questions regarding this letter, please contact Molly S. Wassom, Assistant Director (292/452-2305), Sidney M. Sussan, Assistant Director (202/452-2638), Nicholas A. Kalambokidis, Project Manager (202/452-3830), or David C. Reilly, Supervisory Financial Analyst (202-452-5214), of the Division of Banking Supervision and Regulation; or Deborah M. Awai, Senior Attorney (202/452-3594), or Lisa R. Chavarria, Attorney (202/452-3904), of the Legal Division. For questions relating to the application of the qualifying criteria to foreign banking organizations, please contact Susan Krinsky, Acting Manager, International Applications Section (202/452-2818), of the Division of Banking Supervision and Regulation.

Richard Spillenkothen
Director

ATTACHMENT TRANSMITTED ELECTRONICALLY BELOW

Cross References: Federal Reserve Board Final Rule (62 Federal Register 9,290 (1997))

SR 97-10 (APP), Guidance on Protested Proposals
SR 97-11 (APP), Procedures for Making Regulatory Filings Available to Requesters

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ATTACHMENT

Each bank holding company, including a foreign banking organization, is responsible for certifying compliance with the requirement that the company and insured depository institutions controlled by the company are well-capitalized and well-managed. If a foreign banking organization does not provide the actual assets of its U.S. branches and agencies on a risk-weighted basis in its application, the Reserve Bank should use the conservative estimation methodology, discussed below, to estimate the risk-weighted assets of such institutions. In performing these calculations for U.S. branches and agencies, the Reserve Bank should review existing in-house data filed by the foreign banking organization (i.e., FFIEC 031, 032, 033, 034, and/or 002 reports). If the results of the Reserve Bank's calculations using those data and methodology reveal a close determination, the Reserve Bank should contact the foreign banking organization to obtain more definitive information.

Note: All "due to/due from" items are excluded

FFIEC 002

ITEM	WEIGHT	REPORT LOCATION
ON BALANCE SHEET
Cash items in process of collection and unposted debits	20 percent	Schedule A, item 1, Column A
Currency and coin (U.S. and foreign)	0 percent	Schedule A, item 2, Column A
Balances due from depository institutions in the U.S.: a. U.S. branches and agencies of other foreign banks b. Other depository institutions in the U.S.	20 percent 20 percent	Schedule A, item 3.a., Column A Schedule A, item 3.b., Column A
Balances due from banks in foreign countries and foreign central banks: a. Foreign branches of U.S. banks b. Other banks in foreign countries and foreign central banks	20 percent 20 percent	Schedule A, item 4.a., Column A Schedule A, item 4.b., Column A
Balances due from Federal Reserve Banks	0 percent	Schedule A, item 5, Column A
U.S. Government securities (not held for trading) a. U.S. treasury securities b. U.S. government agency obligations	0 percent 0 percent	Schedule RAL, item 1.b.(1), Column A Schedule RAL, item 1.b.(2), Column A
Other bonds, notes, debentures, and corporate stock (1) Securities of foreign governments and official institutions (2) All other	50 percent 100 percent	Schedule RAL, item 1.c.(1), Column A Schedule RAL, item 1.c.(2), Column A
Federal funds sold and securities purchased under agreements to resell: (1) With U.S. branches and agencies of other foreign banks (2) With other commercial banks in the U.S. (3) With others	20 percent 20 percent 20 percent	Schedule RAL, items 1.d.(1), Column A Schedule RAL, items 1.d.(2), Column A Schedule RAL, items 1.d.(3), Column A
Loans and leases, net of unearned income	100 percent	Schedule RAL, item 1.e., Column A
Trading assets	50 percent	Schedule RAL, item 1.f., Column A
Customers' liability to this branch or agency on acceptances outstanding: (1) U.S. addressees (2) Non-U.S. addressees	100 percent 100 percent	Schedule RAL, items 1.g.(1), Column A Schedule RAL, items 1.g.(2), Column A
Other assets including other claims on nonrelated parties	100 percent	Schedule RAL, item 1.h., Column A
Net due from related depository institutions	0 percent	Schedule RAL, item 2.a., Column A

OFF-BALANCE SHEET (Transactions with non-related depository institutions) (CCF = Credit Conversion Factor)
Commitments to make or purchase loans	(CCF = 50 percent) 100 percent	Schedule L, item 1
Spot foreign exchange contracts N/A	N/A
Standby letters of credit a. Total b. Amount of total conveyed to others	(CCF = 100 percent) 100 percent	Schedule L, item 3.a. minus item 3.b.
Commercial and similar letters of credit	(CCF = 20 percent) 100 percent	Schedule L, item 4
Participations in acceptances conveyed to others by the reporting branch or agency N/A	N/A
Participations in acceptances acquired by the reporting (non-accepting) branch or agency	(CCF = 100 percent) 100 percent	Schedule L, item 6
All other off-balance sheet contingent liabilities greater than or equal to ½ percent of total claims on nonrelated parties as reported on Schedule RAL, item 1.i. N/A	N/A
All other off-balance sheet contingent claims (assets) greater than or equal to ½ percent of total claims on nonrelated parties as reported on Schedule RAL, item 1.i.	(CCF = 100 percent) 100 percent	Schedule L, item 8
Gross amounts (e.g., notional amounts): a. Futures contracts N/A b. Forward contracts c. Exchange-traded option contracts: (1) Written options N/A (2) Purchased options N/A d. Over-the-counter option contracts: (1) Written options N/A (2) Purchased options e. Swaps	(CCF = 0.5 for Column A 1.0 for Column B 6.0 for Column C 10.0 for Column D) 50 percent (for all three items)	Schedule L, item 9.b., Columns A,B,C,D Schedule L, item 9.d.(2), Columns A,B,C,D Schedule L, item 9.e., Columns A,B,C,D