United States: Federal Reserve Proposes Revisions To The Control Framework Under The Bank Holding Company Act

Summary: The Federal Reserve Board has issued a notice of proposed rulemaking proposing revisions to Regulations Y and Regulations LL. The proposal would revise and clarify the standards for determining when a company exercises controlling influence over another company for purposes of the Bank Holding Company Act and the Home Owners' Loan Act.

On April 23, 2019, the Federal Reserve Board ("Fed") issued a notice of proposed rulemaking proposing revisions to Regulations Y and Regulations LL.1 The rulemaking would revise the standards for determining when a company exercises controlling influence over another company for purposes of the Bank Holding Company ("BHC") Act and the Home Owners' Loan Act ("HOLA"). In particular, the rulemaking would codify several presumptions for determining when one company's relationship with another company rises to the level of controlling influence. The stated aim of the Fed's proposal is to provide clearer and more transparent control rules for banks and companies that are considering forming economic relationships with banks.

Control is a critical concept under the BHC Act and HOLA. The application of both statutes often turns on whether a financial institution controls, or is controlled by, another company.2 Under both statutes, an entity controls another entity if the first entity "(i) directly or indirectly or acting through one or more other persons owns, controls, or has power to vote 25 percent or more of any class of voting securities of the other company; (ii) controls in any manner the election of a majority of the directors of the other company; or (iii) directly or indirectly exercises a controlling influence over the management or policies of the other company."3 While the share ownership and director election thresholds are relatively straightforward, the third standard—whether a company "directly or indirectly exercises a controlling influence" over another company—can pose significant challenges for institutions attempting to navigate the control test. The Fed's proposal is intended to clarify that standard.

The Fed's proposal would revise Regulations Y and LL to identify tiered presumptions of control based on seven factors:

  • The size of the first company's voting equity investment in the second company;
  • The size of the first company's total equity investment in the second company;
  • The first company's rights to director representation and committee representation on the board of directors of the second company;
  • The first company's use of proxy solicitations with respect to the second company;
  • Management, employee, or director interlocks between the companies;
  • Covenants or other agreements that allow the first company to influence or restrict management or operational decisions of the second company; and
  • The scope of the business relationships between the companies.

Each of these factors would be assessed in combination with the level of voting share ownership. For example, a company with between 5 and 10% voting shares would be presumed to control a second company if the first company has business relationships with the second company that generate in the aggregate 10 percent or more of the total annual revenues or expenses of the first company or the second company. In this circumstance, the control presumption would also be triggered if the first company's representation on the second company's board of directors exceeds 25%. The proposed rulemaking outlines how these tiered presumptions would apply.4

Summary of Tiered Presumptions

Presumption of control triggered if any relationship exceeds the amount:

Although the tiered presumptions are not dispositive, the Fed's proposal states that "the Board generally would not expect to find that a company controls another company unless the first company triggers a presumption of control with respect to the second company."

As the proposal notes, the Fed has used these or similar factors to identify control in the past. What is significant here is the proposal of a prescribed framework for applying these factors to determine a presumption of control. The proposal includes additional provisions intended to reduce uncertainty about the control test. Notably, the rule would add a new presumption of noncontrol where "the first company controls less than 10 percent of every class of voting securities of the second company" and none of the specified factors create a presumption of control under the proposed tiered framework. The proposal also reaffirms that the Fed would continue to make a presumption of control based on the existence of management agreements, a company serving as another company's investment advisor, the consolidation of accounting, or ownership of a first company by management and officers of a second company. The proposal additionally amends Regulation Y and Regulation LL to update various definitions, and provides a serious of technical updates to determinations of how to calculate of equity holdings and the right to vote shares.

This proposal represents a significant development for banks and for companies considering economic relationships with banks. The proposed rulemaking would bring significantly greater certainty to an area previously subject to uncertainty and regulator discretion. In particular, the proposed tiered thresholds should in principle provide institutions with a clearer understanding of how to structure their relationships consistent with their obligations under the BHC Act and HOLA.This would have particular implications for investments by banks in fintech companies, as well as for private equity investments in banking institutions.

Comments on the proposal will likely be due in late June, sixty days after the date the proposal is published in the Federal Register.

WilmerHale will continue to monitor the proposal and related issues.


1. See FEDERAL RESERVE, Federal Reserve Board invites public comment on proposal to simplify and increase the transparency of rules for determining control of a banking organization (April 23, 2019).

2. See 12 U.S.C. § 1841; 12 U.S.C. § 1461.

3. 12 U.S.C. § 1467a(a)(2); § 1841(a)(2); 12 CFR § 225.2(e), 238.2(e).

4. See FEDERAL RESERVE, Appendix, Summary of Tiered Presumptions.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
Cadwalader, Wickersham & Taft LLP
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Cadwalader, Wickersham & Taft LLP
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions