On April 23, the Board of Governors of the U.S. Federal Reserve System (the Federal Reserve) issued a notice of proposed rulemaking (the Proposal)1 that would consolidate — and in important respects change — how the Federal Reserve interprets “control” under the Bank Holding Company Act (the BHCA) and the Home Owners’ Loan Act (the HOLA). The Proposal is the most significant public guidance from the Federal Reserve on the interpretation of “control” under these statutes in over a decade. The Proposal promises to make the Federal Reserve’s control rules clearer and more transparent. Some of the proposed changes to the Federal Reserve’s historical positions on control will have implications for financial technology (fintech) companies, investors in banking organizations and activist investors in addition to banking organizations themselves. The Proposal will be subject to a 60-day public comment period from the date it is published in the Federal Register. As part of the Proposal, the Federal Reserve posed a number of questions to the public on which it hopes to receive comments.
There are three main tests of control under the BHCA and the HOLA, two of which are clear, bright-line tests.2 First, a company is deemed to control another company when the first company controls 25% or more of a class of voting securities of the second company. Second, a company is deemed to control another company when the first company controls a majority of the second company’s board of directors (or the equivalent of the board of directors). The Proposal is generally meant to clarify the third test of control: whether a company exercises a “controlling influence” over another company. As this test is included in the definition of “control” in both statutes, the proposed rule, if adopted, would affect both bank holding companies (BHCs) and savings and loan holding companies (SLHCs).
This client alert provides a high-level overview of the most notable aspects of the Proposal, including how it compares to the Federal Reserve’s current control regime. Following the overview, we describe our key takeaways from the Proposal.
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