Member Article

On March 31, the Federal Reserve Board announced that it will delay for six months the effective date (from April 1, 2020 to September 30, 2020) for its revised control framework for determining when a company controls a bank, and vice versa, for purposes of the Bank Holding Company Act (referred to as the “BHC Act”). The delay is intended to reduce operational burdens on banks, enable them to focus on conducting business during uncertain economic conditions, and provide banks with extra time to consult with FRB staff on the revised framework.

Previously, the Board adopted a final rule on January 30 that revised its regulations related to determining whether a company controls another company for purposes of the BHC Act. Under the BHC Act, control is defined by a three-pronged test: a company has control over another company if the first company:

(1) directly or indirectly has the power to vote 25 percent or more of any class of voting securities of the other company;

(2) controls in any manner the election of a majority of the directors or trustees of the other company; or

(3) directly or indirectly exercises a “controlling influence” over the management or policies over the other company.

Although the first two prongs provide straightforward standards, the third prong requires a facts and circumstances determination by the FRB that often included analysis and precedents not available to the public.

The revised control framework codified presumptions of control that the FRB uses in making a control determination with the intent of providing transparency by making public additional information regarding the FRB’s views on controlling influence. Specifically, the FRB established a series of tiered presumptions of control that are based on the level of voting securities owned by the “controlling” company.

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