On January 29, 2015, the Federal Reserve Board (“Fed”) issued a proposed rule that would expand the number of small bank holding companies and savings and loans allowed to operate using a higher level of debt than large financial institutions.
In addition, the Fed announced its interim final rule on reduced reporting requirements for certain savings and loan holding companies.
The proposed rule would allow qualifying smaller bank holding companies with $1 billion in total consolidated assets to fund their operations with more debt under the Fed’s 1980 Small Bank Holding Company Policy. The current threshold is $500 million.
The proposed rule and interim final rule follows on the heels of the passage of H.R. 3329 by Congress in December 2014 to expand the number of community banks that can operate with a higher level of debt than larger financial institutions. The bill was signed by President Obama into law on December 18, 2014.
The Fed’s proposed rule is the implementation of the new law, which requires that qualifying small bank and savings and loan holding companies:
“(1) Are not engaged in significant nonbanking activities either directly or through a nonbank subsidiary,
(2) Do not conduct significant off-balance sheet activities either directly or through a nonbank subsidiary (including securitization and asset management or administration), and
(3) Do not have a material amount of debt or equity securities outstanding (other than trust preferred securities) that are registered with the Securities and Exchange Commission (“SEC”).”
The interim final rule would exclude savings and loan holding companies with less than $500 million in total consolidated assets from the Board’s regulatory capital requirements (Regulation Q).
The deadline for public commentary on both the proposed and final interim rules is March 4, 2015.
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