BHC Regulations Lesson

Question 1

Explain the advantages of the holding company structure.

Answer 1

• diversification beyond core activities within the bank charter
• geographic expansion - not restricted in the number of banks or banking locations
• tax treatment - if BHC owns at least 80% of a bank, tax rules permit the filing of a consolidated tax return. interest expense on funds borrowed by the HC is a deductible expense, which means the debt is serviced with pretax cash flow

Question 2

Reg Y

Answer 2

a bank holding company shall serve as a source of financial and managerial strength to its subsidiary banks and shall not conduct its operations in an unsafe and unsound manner.”

Question 3

Advantages of BHC structure

Answer 3

diversification
expansion
tax treatment

Question 4

Tax treatment

Answer 4

Advantage - using before tax dollars to repay debt

Interest expense is tax deductible

Question 5

Source of strength of banks

Answer 5

• HC can’t “walk away” from a failing subsidiary.

- HC must support its subsidiary

Question 6

Source of strength of nonbank activity

Answer 6

can’t act inconsistent with sound banking principals if constitutes a serious risk

Question 7

well-capitalized definitions

Answer 7

-BHC
T1RBC of 8% (before was 6%)
Total RBC 10%

Question 8

well-capitalized definitions

Answer 8

-FHC financial
T1Lev 5%
T1RBC 6%
TRBC 10%

Question 9

well-capitalized definitions-

insured depository institutions

Answer 9

IDI
T1Lev 5%
T1RBC 6%
TRBC 10%

Question 10

well-capitalized definitions-foreign banks

Answer 10

based on whether or not the home-country supervisor has adopted capital standards consistent with the Basle Accord

Question 11

well-managed definition

Answer 11

• satisfactory composite -

- satisfactory management-

Question 12

Transactions requiring prior approval

Answer 12

• formation of BHC
• BHC mergers
• txns with foreign banking organization(FBO)

Question 13

Transactions NOT requiring board approval

Answer 13

acquisition of:

• securities in a fiduciary capacity
• securities in satisfaction of debts previously contracted
• securities by a BHC with majority control
• involving bank mergers and
• involving internal corporate reorganization

Question 14

Identify when an acquisition of bank stock or a stock redemption by a company is subject to prior Federal Reserve approval under the BHC Act.

Answer 14

• a transaction, when aggregated with the transactions made during the preceding 12 months, is equal to 10 percent or more of the company’s consolidated net worth and,
• after the redemption, the company would be less than well-capitalized or less than well-managed, or the company would be subject to an unresolved supervisory issue.

Question 15

Describe which nonbanking activities and acquisitions are allowed for bank holding
companies.

Answer 15

Servicing activities:
advertising data processing
collection agency
Safe Deposit business

Question 16

Describe which nonbanking activities and acquisitions are prohibited for bank holding
companies.

Answer 16

Broadly prohibits BHCs from buying shares of any company other than a bank and from engaging in any activity other than managing and controlling banks, except as provided in Section 225.22

Question 17

DPC

Answer 17

debt previously contracted

Question 18

CIBCA

Answer 18

Change in Bank Control Act- focuses on company ownership of banks and bank holding companies

Question 19

Publicly Traded

Answer 19

Prior notice is required before making an acquisition that will take an acquirer or acquirer group’s ownership above 10 percent of voting shares.

Question 20

Not Publicly Traded

Answer 20

-the acquirer’s ownership being above the 10 percent threshold, but control remaining below 25
percent, and
-the acquirer controlling more shares than any other shareholder or group.