ARTICLE
4 February 2020

FRB Finalizes Revisions To "Control" Rules

CW
Cadwalader, Wickersham & Taft LLP

Contributor

Cadwalader, established in 1792, serves a diverse client base, including many of the world's leading financial institutions, funds and corporations. With offices in the United States and Europe, Cadwalader offers legal representation in antitrust, banking, corporate finance, corporate governance, executive compensation, financial restructuring, intellectual property, litigation, mergers and acquisitions, private equity, private wealth, real estate, regulation, securitization, structured finance, tax and white collar defense.
The Federal Reserve Board 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.
United States Finance and Banking

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.

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.

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