Financial Update (First Quarter 2004)



FEATURES

 Directors Under
 More Scrutiny

 Fed Studies Checks
 and E-payments

 Mexican Secondary
 Mortgage Market

 Fed Emphasizes
 CIBCA Compliance

 Guynn Stresses
 Long-Term Policy

 Kohn Says U.S. Is
 Key in World
 Economy

 New Tool for
 Community
 Developers

 New Sixth
 District Directors

 Two Newsletters
 Launched

DEPARTMENTS

 Did You Know?

 Data Bank

 Circular Letters

STAFF

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Board of Governors Emphasizes Compliance
With the Change in Bank Control Act

Toward the end of 2003, the Federal Reserve Board of Governors issued new guidelines relating to the Change in Bank Control Act (CIBCA). The Board noted that some inadvertent violations of CIBCA have occurred because some banks and holding companies are not aware of the act’s requirements.

Related
Board of Governors guidance regarding CIBCA
Regulation Y
CIBCA forms

The new guidance directs Reserve Banks to report all unauthorized changes in ownership, whether intentional or unintentional, to the Board to ensure that appropriate corrective action is taken. In other words, the Board is now taking a hard look at individuals, member banks, and holding companies that do not comply with CIBCA.

So what does CIBCA require? Simply that an individual or group of individuals, if acting in concert, provide notice to the appropriate Reserve Bank (acting as agent for the Board) before acquiring control of a member bank or holding company. (In certain circumstances, notice after the fact is acceptable—for instance, when a person acquires control through inheritance.) While this requirement appears straightforward, CIBCA’s “presumptions of control” and “presumptions of acting in concert” trip up many shareholders.

Regulation Y, which implements CIBCA, states that an individual is presumed to control a bank or its holding company if he or she owns 10 percent or more of the entity’s outstanding stock and the entity is publicly traded or there is no larger individual shareholder.

Complicating this 10 percent rule are Regulation Y’s presumptions of acting in concert. When an individual is deemed to act in concert with other shareholders, all their stock is counted together for purposes of the 10 percent ownership rule.

Regulation Y specifies six presumptions of acting in concert. Probably the most inclusive of these presumptions is that an individual is deemed to act in concert with his or her “immediate family.” The term includes a larger group of relatives than most people would expect. In addition to parents, siblings, and children, Regulation Y provides that one’s immediate family includes stepparents, stepsiblings, grandparents, grandchildren, in-laws, and the spouse of any of these people.

Especially in small or closely held banks and bank holding companies, family groups often unknowingly trigger CIBCA filings. Given the Board’s increased focus on CIBCA, the Reserve Banks encourage their member banks and holding companies to review their shareholder lists with Regulation Y’s CIBCA provisions in mind. While responsibility falls on the shareholders to make a filing, the Board recommends that banks and holding companies “when possible share [information about CIBCA] with shareholders with significant ownership positions.”

If you have questions about how to file or whether to file a CIBCA notice, you should contact local Reserve Bank staff.

Sixth District Reserve Bank staff contacts:

  • How to file: Huston McKinney, director of Applications Risk, (404) 498-7221
  • Is a filing required? Alaina Gimbert, assistant counsel, (404) 498-8333, or Dwight Blackwood, assistant general counsel, (404) 498-8262

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