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Federal Reserve 4(M) Agreements

Douglas Landy, Regulatory Partner at Milbank Financial Institutions, and his partner James Kong co-authored an article in The Review of Banking & Financial Services entitled “Behind Closed Doors: The Use of 4(M) Agreements to Effect Federal Reserve Policy.” The article discusses the Federal Reserve`s role in oversight and enforcement, a brief history of financial holding companies` activities, and the regulatory response to the post-2008 financial crisis. It also points to the Federal Reserve`s use of confidential Section 4(m) agreements as a “parallel” policy tool to control activities it deems risky. The article concludes with a recent speech by Vice President Quarles, proposing specific reforms to increase the transparency of the banking supervision process. A3: Where a financial holding company acquires shares, assets or other ownership shares, the applicable holding period generally begins on the date of acquisition and does not include the period during which the investment was held by the former owner, even if the former owner was a financial holding company and the shares were held by that owner under the supervision of Merchant Banking. However, if a financial holding company acquires shares, assets or other ownership shares of a related party, as provided for in Rule Y, the acquirer`s holding period must include (or “pin”) a period prior to the acquisition. See 12 CFR 225.172(b)(2). If the “tacking” rule applies, a financial holding company must indicate, as part of its holding period, the period during which (i) the affiliate held the investment or (ii) the financial holding company held the investment under another provision of the Bundesbank Act, which also requires a limited holding period for the investment. See 12 CFR 225.172(b)(3). A1: A financial holding company subject to business restrictions under 12 CFR 225.83(d) or a Section 4(m) agreement may, without the prior consent of the Board of Directors, reorganize its existing activities authorized under Section 4(k) of the BHC Act, provided that the financial holding company does not undertake new activities as part of the restructuring and does not acquire shares in a non-subsidiary.

Under what circumstances would a voting trust, purchase and sale agreement or other similar agreement between the shareholders of a bank holding company not constitute a “corporation” within the meaning of the BHC Act? A2: For the purpose of calculating The Customer`s combined balance, the term “Customer” may include the individual requesting the discount and all members of that person`s “immediate family” (as defined in 12 CFR 225.41(b)(3)) who reside at the same address. 12 CFR 225.41 (Transactions Requiring Notice) Specific powers exercised by a trustee often include broad powers to acquire assets, vote on securities held in trust, and transfer control of trust assets. Therefore, a person with the unlimited right to revoke and replace the trustee of a trust would indirectly be able to influence the exercise of the trustee`s powers. Therefore, board staff consider such a party to be part of a group that works with both the trust and its trustees. Source: Orders of the Board of Directors approving the notice of participation in an activity complementary to a financial activity: The Royal Bank of Scotland Group PLC, 94 Fed. Res. Bull. C60 (2008); Societe Generale, 92 Fed. Res.

Bull. C113 (2006); JPMorgan Chase & Co., 92 Fed. Res. Bull. C57 (2006); Deutsche Bank AG, 92 Fed. Res. Bull. C54 (2006); Barclays Bank PLC, 90 Fed. Res.

Bull. 511 (2004); UBS AG, 90 Fed. Res. Bull. 215 (2004); and Citigroup Inc., 89 Fed. Res. Bull. 508 (2003).

Q2: Are there circumstances in which the employees of the board of directors would not recommend to the board of directors to determine that an asset management company controls a bank holding company or a bank within the meaning of the BHC Act or a savings and credit holding company or a savings association within the meaning of HOLA, even if the corporation would be subject to a presumption of control under the rules of the board of directors? A4: In a “term” barter under section 1031, the taxpayer first sells his existing property and then acquires a replacement property of a “similar nature”. To conduct a foreign exchange transaction under Section 1031, a taxpayer must comply with certain conditions of Section 1031 (26 U.S.C§ 1031) and U.S. Treasury Department regulations implementing Section 1031. . Q2: Given the Commission`s interpretation of section 4(c)(6) of the BHC Act in section 225.137 of Regulation Y, may bank holding companies jointly invest in an entity that deals with the clearing and settlement of securities under section 4(c)(6) of the BHC Act if the bank holding companies hold more than 50% of the shares of the company in total? A3: Yes. Section 2 of the BHC Act excludes a trust that is not a commercial trust from the definition of “corporation” if, in accordance with its terms, it terminates (i) within 25 years or (ii) no later than 21 years and 10 months after the death of persons living on the effective date of the trust (termination requirement). 12 U.S.C§ 1841(b); 12 CFR 225.2(d)(1). A trust that meets the termination requirement under its terms and conditions is excluded from the definition of “corporation” in the BHC Act, regardless of whether the trust has as its beneficiary an emerging trust that was formed only upon termination. For the purposes of the termination application, the “effective date” of a Springing Trust is the date on which the Springing Trust is created (upon termination of the original Trust).

A nascent trust that acquires shares of a bank or bank holding company should comply with all applicable deposit requirements in connection with the acquisition. 12 CFR 225.28 (List of Permitted Non-Banking Activities). A1: Under Regulation Y, the total equity of a first company in a second corporation is equal to the sum of the ordinary equity of the investor of the first corporation and, for each class of preferred shares issued by the second corporation, the preferred capital of the investor divided by the equity of the issuer. 12 CFR 225.31(b)(1). Investors` common equity is the highest value of zero and the proportion of common shares of the second company controlled by the first company multiplied by the amount of equity of the second company in the United States. Generally accepted accounting principles (GAAP) that are not attributed to preferred shares. 12 CFR 225.34(b)(2). The preferred shares of investors for each class of preferred shares issued by the second company are the highest value of zero and the proportion of the class of preferred shares controlled by the first company multiplied by the amount of equity on the balance sheet of the second company under U.S.

GAAP allocated to the class of preferred shares. The issuer`s equity is calculated as the sum of the investor`s share capital and preferred capital for each person controlling the equity instruments of the second company. Such an approach to defining the issuer`s equity ensures that the numerator and denominator used to determine the total share of equity of a second entity of a first entity is calculated consistently on the basis of U.S. GAAP. Under this approach, a first company that controls less than one-third of each class of equity securities of a second company should always control less than one-third of the total equity of the second company. .

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