The Federal Reserve Board ("FRB") adopted final amendments for determining whether, under the Bank Holding Company Act and the Home Owners' Loan Act, a company has the ability to exercise a controlling influence on another company. The final rule will be effective on April 1, 2020.
According to the FRB, the final revisions - which are "substantially consistent with the original proposal" - are designed to enhance transparency and consistency of the FRB's control framework and encourage permissible investments in and by banking organizations. Specifically, the final rule:
- identifies several factors and thresholds that the FRB will use to determine whether a company has a "controlling influence" over another, such as (i) the company's total voting and non-voting equity investment in the other, (ii) the director, officer and employee overlap between the entities, and (iii) the scope of business relationships between the companies;
- establishes a "tiered framework" to enhance the FRB's existing regulatory presumptions of control by levels of voting ownership: less than 5 percent, 5-9.99 percent, 10-14.99 percent, and 15-24.99 percent;
- expands the number of presumptions of control and noncontrol; and
- provides various ancillary provisions, including definitions of significant terms.
A Cadwalader memorandum with greater analysis is forthcoming.
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