JOINT FINAL RULE--AMENDMENT TO REGULATION Y.The Board of Governors of the Federal Reserve System Board of Governors of the Federal Reserve System The managing body of the Federal Reserve System, which sets policies on bank practices and the money supply. and the Secretary of the Treasury jointly adopt this final rule governing gov·ern v. gov·erned, gov·ern·ing, gov·erns v.tr. 1. To make and administer the public policy and affairs of; exercise sovereign authority in. 2. merchant banking investments made by financial holding companies. The rule implements provisions of the Gramm-Leach-Bliley Act The Gramm-Leach-Bliley Act, also known as the Gramm-Leach-Bliley Financial Services Modernization Act, Pub. L. No. 106-102, 113 Stat. 1338 (November 12, 1999), is an Act of the United States Congress which repealed the Glass-Steagall Act, opening up competition that permit financial holding companies to make investments as part of a bona fide [Latin, In good faith.] Honest; genuine; actual; authentic; acting without the intention of defrauding. A bona fide purchaser is one who purchases property for a valuable consideration that is inducement for entering into a contract and without suspicion of being securities underwriting Underwriting 1. The process by which investment bankers raise investment capital from investors on behalf of corporations and governments that are issuing securities (both equity and debt). 2. The process of issuing insurance policies. or merchant or investment banking activity. The Board and the Secretary have incorporated a number of amendments to the final rule to address issues raised by public commenters, to reduce potential regulatory reg·u·late tr.v. reg·u·lat·ed, reg·u·lat·ing, reg·u·lates 1. To control or direct according to rule, principle, or law. 2. burdens, and to clarify (company) Clarify - A software vendor, specialising in Customer Relationship Management software. Nortel Networks sold Clarify to Amdocs in 2002. http://amdocsclarify.com/. the application of the rule. These changes include expanding the definition of "securities affiliate Affiliate Relationship between two companies when one company owns substantial interest, but less than a majority of the voting stock of another company, or when two companies are both subsidiaries of a third company. See: Subsidiaries, parent company. " to include a department or division of a bank registered as a municipal securities dealer; modifying the provisions defining prohibited pro·hib·it tr.v. pro·hib·it·ed, pro·hib·it·ing, pro·hib·its 1. To forbid by authority: Smoking is prohibited in most theaters. See Synonyms at forbid. 2. routine management and operation of portfolio companies; adopting a sunset provision A statutory provision providing that a particular agency, benefit, or law will expire on a particular date, unless it is reauthorized by the legislature. Federal and state governments grew dramatically in the 1950s and 1960s. for the investment thresholds under the interim rule and eliminating the dollar-based threshold The point at which a signal (voltage, current, etc.) is perceived as valid. for the review of a financial holding company's merchant banking activities; streamlining the rule's reporting and recordkeeping requirements; broadening broad·en tr. & intr.v. broad·ened, broad·en·ing, broad·ens To make or become broad or broader. broad the definition of "private equity" funds and clarifying clar·i·fy v. clar·i·fied, clar·i·fy·ing, clar·i·fies v.tr. 1. To make clear or easier to understand; elucidate: clarified her intentions. 2. the rule's application to such funds; and adopting several safe-harbors to the presumptions in the rule governing the definition of affiliate for purposes of sections 23A and 23B of the Federal Reserve Act. Effective February February: see month. 15, 2001, 12 C.F.R. Part 225 is amended a·mend v. a·mend·ed, a·mend·ing, a·mends v.tr. 1. To change for the better; improve: amended the earlier proposal so as to make it more comprehensive. 2. as follows: Part 225--Bank Holding Companies and Change in Bank Control (Regulation Y) 1. The authority citation Citation (foaled 1945) U.S. Thoroughbred racehorse. In four seasons he won 32 of 45 races, finished second in ten, and third in two. He won the 1948 Triple Crown, and became the first horse to win $1 million. He set a world record in 1950 by running a mile in 1:33 3/5. for Part 225 continues to read as follows: Authority: 12U. S.C. 1817(j)(13), 1818, 1828(o), 1831i, 1831p-1, 1843(c)(8), 1843(k), 1844(b), 1972(1), 2903, 2905, 3106, 3108, 3310, 3331-3351, 3907, and 3909. 2. Section 225.1(c)(10) is revised to read as follows: Section 225.1--Authority, purpose, and scope. (c) * * * (10) Subpart Noun 1. subpart - a part of a part component part, part, portion, component, constituent - something determined in relation to something that includes it; "he wanted to feel a part of something bigger than himself"; "I read a portion of the manuscript"; "the J governs the conduct of merchant banking investment activities by financial holding companies as permitted under section 4(k)(4)(H) of the Bank Holding Company Act (12 U.S.C. 1843(k)(4)(H)). 3. Subpart J is revised to read as follows: Subpart J--Merchant Banking Investments Section 225.170--What type of investments are permitted by this subpart, and under what conditions may they be made? Section 225.171--What are the limitations on managing or operating a portfolio company held as a merchant banking investment? Section 225.172--What are the holding periods permitted for merchant banking investments? Section 225.173--How are investments in private equity funds treated under this subpart? Section 225.174--What aggregate thresholds apply to merchant banking investments? Section 225.175--What risk management, record keeping and reporting policies are required to make merchant banking investments? Section 225.176--How do the statutory cross marketing and sections 23A and B limitations apply to merchant banking investments? Section 225.177--Definitions. Subpart J--Merchant Banking Investments Section 225.170--What type of investments are permitted by this subpart, and under what conditions may they be made ? (a) What types of investments are permitted by this subpart? Section 4(k)(4)(H) of the Bank Holding Company Act (12 U.S.C. 1843(k)(4)(H)) and this subpart authorize To empower another with the legal right to perform an action. The Constitution authorizes Congress to regulate interstate commerce. authorize v. to officially empower someone to act. (See: authority) a financial holding company, directly or indirectly and as principal or on behalf of one or more persons, to acquire or control any amount of shares, assets or ownership interests of a company or other entity that is engaged in any activity not otherwise authorized au·thor·ize tr.v. au·thor·ized, au·thor·iz·ing, au·thor·iz·es 1. To grant authority or power to. 2. To give permission for; sanction: for the financial holding company under section 4 of the Bank Holding Company Act. For purposes of this subpart, shares, assets or ownership interests acquired or controlled under section 4(k)(4)(H) and this subpart are referred to as "merchant banking investments." A financial holding company may not directly or indirectly acquire or control any merchant banking investment except in compliance with the requirements of this subpart. (b) Must the investment be a bona fide merchant banking investment? The acquisition or control of shares, assets or ownership interests under this subpart is not permitted unless it is part of a bona fide underwriting or merchant or investment banking activity. (c) What types of ownership interests may be acquired? Shares, assets or ownership interests of a company or other entity include any debt or equity security, warrant, option, partnership interest, trust certificate or other instrument representing an ownership interest in the company or entity, whether voting or nonvoting nonvoting Adjective Finance (of shares in a company) not entitling the holder to vote at company meetings nonvoting adj nonvoting shares → acciones fpl sin derecho a voto . (d) Where in a financial holding company may merchant banking investments be made? A financial holding company and any subsidiary (other than a depository institution Depository institution A financial institution that obtains its funds mainly through deposits from the public. This includes commercial banks, savings and loan associations, savings banks and credit unions. or subsidiary of a depository institution) may acquire or control merchant banking investments. A financial holding company and its subsidiaries may not acquire or control merchant banking investments on behalf of a depository institution or subsidiary of a depository institution. (e) May assets other than shares be hem directly? A financial holding company may not under this subpart acquire or control assets, other than debt or equity securities or other ownership interests in a company, unless: (1) The assets are held by or promptly prompt adj. prompt·er, prompt·est 1. Being on time; punctual. 2. Carried out or performed without delay: a prompt reply. tr.v. transferred to a portfolio company; (2) The portfolio company maintains policies, books and records, accounts, and other indicia Signs; indications. Circumstances that point to the existence of a given fact as probable, but not certain. For example, indicia of partnership are any circumstances which would induce the belief that a given person was in reality, though not technically, a member of a given of corporate, partnership or limited liability organization and operation that are separate from the financial holding company and limit the legal liability of the financial holding company for obligations of the portfolio company; and (3) The portfolio company has management that is separate from the financial holding company to the extent required by section 225.171. (f) What type of affiliate is required for a financial holding company to make merchant banking investments? A financial holding company may not acquire or control merchant banking investments under this subpart unless the financial holding company qualifies under at least one of the following paragraphs: (1) Securities affiliate. The financial holding company is or has an affiliate that is registered under the Securities Exchange Act of 1934 (15 U.S.C. 78c, 78o, 78o-4) as: (i) A broker or dealer; or (ii) A municipal securities dealer, including a separately identifiable department or division of a bank that is registered as a municipal securities dealer. (2) Insurance affiliate with an investment adviser affiliate. The financial holding company controls: (i) An insurance company that is predominantly pre·dom·i·nant adj. 1. Having greatest ascendancy, importance, influence, authority, or force. See Synonyms at dominant. 2. engaged in underwriting life, accident and health, or property and casualty insurance (other than credit-related insurance), or providing and issuing annuities; and (ii) A company that: (A) Is registered with the Securities and Exchange Commission as an investment adviser under the Investment Advisers Act of 1940 (15 U.S.C. 80b-1 et seq et seq. (et seek) n. abbreviation for the Latin phrase et sequentes meaning "and the following." It is commonly used by lawyers to include numbered lists, pages or sections after the first number is stated, as in "the rules of the road are found in Vehicle Code .); and (B) Provides investment advice to an insurance company. Section 225.171--What are the limitations on managing or operating a portfolio company held as a merchant banking investment? (a) May a financial holding company routinely manage or operate a portfolio company? Except as permitted in paragraph (e) of this section, a financial holding company may not routinely manage or operate any portfolio company. (b) When does a financial holding company routinely manage or operate a company? (1) Examples of routine management or operation.- (i) Executive officer interlocks at the portfolio company. A financial holding company routinely manages or operates a portfolio company if any director, officer or employee of the financial holding company serves as or has the responsibilities of an executive officer of the portfolio company. (ii) Interlocks by executive officers of the financial homing company. (A) Prohibition prohibition, legal prevention of the manufacture, transportation, and sale of alcoholic beverages, the extreme of the regulatory liquor laws. The modern movement for prohibition had its main growth in the United States and developed largely as a result of the . A financial holding company routinely manages or operates a portfolio company if any executive officer of the financial holding company serves as or has the responsibilities of an officer or employee of the portfolio company. (B) Definition. For purposes of paragraph (b)(1)(ii)(A) of this section, the term "financial holding company" includes the financial holding company and only the following subsidiaries of the financial holding company: (1) A securities broker or dealer registered under the Securities Exchange Act of 1934; (2) A depository institution; (3) An affiliate that engages in merchant banking activities under this subpart or insurance company investment activities under section 4(k)(4)(I) of the Bank Holding Company Act (12 U.S.C. 1843(k)(4)(I)); (4) A small business investment company (as defined in section 302(b) of the Small Business Investment Act of 1958 (15 U.S.C. 682(b)) controlled by the financial holding company or by any depository institution controlled by the financial holding company; and (5) Any other affiliate that engages in significant equity investment activities that are subject to a special capital charge under the capital adequacy rules or guidelines guidelines, n.pl a set of standards, criteria, or specifications to be used or followed in the performance of certain tasks. of the Board. (iii) Covenants regarding ordinary course of business. A financial holding company routinely manages or operates a portfolio company if any covenant covenant (kŭv`ənənt), agreement entered into voluntarily by two or more parties to do or refrain from doing certain acts. In the Bible and in theology the covenant is the agreement or engagement of God with man as revealed in the or other contractual arrangement exists between the financial holding company and the portfolio company that would restrict In the C programming language, the data pointed to by a pointer declared with the restrict qualifier may not be pointed to by any other pointer. This allows for more effective optimization. the portfolio company's ability to make routine business decisions, such as entering into transactions in the ordinary course of business or hiring officers or employees other than executive officers. (2) Presumptions of routine management or operation. A financial holding company is presumed to routinely manage or operate a portfolio company if: (i) Any director, officer, or employee of the financial holding company serves as or has the responsibilities of an officer (other than an executive officer) or employee of the portfolio company; or (ii) Any officer or employee of the portfolio company is supervised su·per·vise tr.v. su·per·vised, su·per·vis·ing, su·per·vis·es To have the charge and direction of; superintend. [Middle English *supervisen, from Medieval Latin by any director, officer, or employee of the financial holding company (other than in that individual's capacity as a director of the portfolio company). (c) How may a financial homing company rebut To defeat, dispute, or remove the effect of the other side's facts or arguments in a particular case or controversy. When a defendant in a lawsuit proves that the plaintiff's allegations are not true, the defendant has thereby rebutted them. TO REBUT. a presumption A conclusion made as to the existence or nonexistence of a fact that must be drawn from other evidence that is admitted and proven to be true. A Rule of Law. If certain facts are established, a judge or jury must assume another fact that the law recognizes as a logical that it is routinely managing or operating a portfolio company? A financial holding company may rebut a presumption that it is routinely managing or operating a portfolio company under paragraph (b)(2) of this section by presenting information to the Board demonstrating to the Board's satisfaction that the financial holding company is not routinely managing or operating the portfolio company. (d) What arrangements do not involve routinely managing or operating a portfolio company? (1) Director representation at portfolio companies. A financial holding company may select any or all of the directors of a portfolio company or have one or more of its directors, officers, or employees serve as directors of a portfolio company if: (i) The portfolio company employs officers and employees responsible for routinely managing and operating the company; and (ii) The financial holding company does not routinely manage or operate the portfolio company, except as permitted in paragraph (e) of this section. (2) Covenants or other provisions regarding extraordinary events. A financial holding company may, by virtue of covenants or other written agreements with a portfolio company, restrict the ability of the portfolio company, or require the portfolio company to consult with or obtain the approval of the financial holding company, to take actions outside of the ordinary course of the business of the portfolio company. Examples of the types of actions that may be subject to these types of covenants or agreements include, but are not limited to, the following: (i) The acquisition of significant assets or control of another company by the portfolio company or any of its subsidiaries; (ii) Removal or selection of an independent accountant A person who has the requisite skill and experience in establishing and maintaining accurate financial records for an individual or a business. The duties of an accountant may include designing and controlling systems of records, auditing books, and preparing financial statements. or auditor auditor n. an accountant who conducts an audit to verify the accuracy of the financial records and accounting practices of a business or government. A proper audit will point out deficiencies in accounting and other financial operations. or investment banker Investment Banker A person representing a financial institution that is in the business of raising capital for corporations and municipalities. Notes: An investment banker may not accept deposits or make commercial loans. by the portfolio company; (iii) Significant changes to the business plan or accounting methods or policies of the portfolio company; (iv) Removal or replacement of any or all of the executive officers of the portfolio company; (v) The redemption The liberation of an estate in real property from a mortgage. Redemption is the process by which land that has been mortgaged or pledged is bought back or reclaimed. It is accomplished through a payment of the debt owed or a fulfillment of the other conditions. , authorization The right or permission to use a system resource; the process of granting access. See access control. or issuance of any equity or debt securities (including options, warrants or convertible shares) of the portfolio company or any borrowing by the portfolio company outside of the ordinary course of business; (vi) The amendment of the articles of incorporation The document that must be filed with an appropriate government agency, commonly the office of the Secretary of State, if the owners of a business want it to be given legal recognition as a corporation. or by-laws BY-LAWS. Rules and ordinances made by a corporation for its own government. 2. The power to make by-laws is usually conferred by express terms of the charter creating the corporation, though, when not expressly granted, it is given by implication, and it is (or similar governing documents) of the portfolio company; and (vii) The sale, merger, consolidation, spin-off The situation that arises when a parent corporation organizes a subsidiary corporation, to which it transfers a portion of its assets in exchange for all of the subsidiary's capital stock, which is subsequently transferred to the parent corporation's shareholders. , recapitalization Recapitalization Restructuring a company's debt and equity mixture often with the aim of making a company's capital structure more stable. Notes: Companies often want to diversify their debt-to-equity ratio to improve liquidity. , liquidation The collection of assets belonging to a debtor to be applied to the discharge of his or her outstanding debts. A type of proceeding pursuant to federal Bankruptcy , dissolution Act or process of dissolving; termination; winding up. In this sense it is frequently used in the phrase dissolution of a partnership. The dissolution of a contract is its Rescission by the parties themselves or by a court that nullifies its binding force and reinstates each or sale of substantially all of the assets of the portfolio company or any of its significant subsidiaries. (3) Providing advisory and underwriting services to, and having consultations with, a portfolio company. A financial holding company may: (i) Provide financial, investment and management consulting Noun 1. management consulting - a service industry that provides advice to those in charge of running a business service industry - an industry that provides services rather than tangible objects advice to a portfolio company in a manner consistent with and subject to any restrictions on such activities contained in sections 225.28(b)(6) or 225.86(b)(1) of this part (12 C.F.R. 225.28(b)(6) and 225.86(b)(1)); (ii) Provide assistance to a portfolio company in connection with the underwriting or private placement of its securities, including acting as the underwriter underwriter n. a company or person which/who underwrites an insurance policy, issue of corporate securities, business, or project. (See: underwrite) UNDERWRITER, insurances. One who signs a policy of insurance, by which he becomes an insurer. or placement agent for such securities; and (iii) Meet with the officers or employees of a portfolio company to monitor or provide advice with respect to the portfolio company's performance or activities. (e) When may a financial holding company routinely manage or operate a portfolio company? (1) Special circumstances special circumstances n. in criminal cases, particularly homicides, actions of the accused or the situation under which the crime was committed for which state statutes allow or require imposition of a more severe punishment. required. A financial holding company may routinely manage or operate a portfolio company only when intervention A procedure used in a lawsuit by which the court allows a third person who was not originally a party to the suit to become a party, by joining with either the plaintiff or the defendant. by the financial holding company is necessary or required to obtain a reasonable return on the financial holding company's investment in the portfolio company upon resale resale n. selling again, particularly at retail. In many states a "resale license" or "resale number" is required so that the state can monitor the collection of sales tax on retail sales. RESALE. or other disposition Act of disposing; transferring to the care or possession of another. The parting with, alienation of, or giving up of property. The final settlement of a matter and, with reference to decisions announced by a court, a judge's ruling is commonly referred to as disposition, regardless of of the investment, such as to avoid or address a significant operating loss operating loss The excess of operating expenses over revenue. As with operating income, operating losses exclude revenues and expenses from operations that are not considered a regular part of the business. Also called deficit. Compare operating income. or in connection with a loss of senior management at the portfolio company. (2) Duration limited. A financial holding company may routinely manage or operate a portfolio company only for the period of time as may be necessary to address the cause of the financial holding company's involvement, to obtain suitable alternative management arrangements, to dispose of To determine the fate of; to exercise the power of control over; to fix the condition, application, employment, etc. of; to direct or assign for a use. See also: Dispose the investment, or to otherwise obtain a reasonable return upon the resale or disposition of the investment. (3) Notice required for extended involvement. A financial holding company may not routinely manage or operate a portfolio company for a period greater than nine months without prior written notice to the Board. (4) Documentation required. A financial holding company must maintain and make available to the Board upon request a written record describing its involvement in routinely managing or operating a portfolio company. (f) May a depository institution or its subsidiary routinely manage or operate a portfolio company? (1) In general. A depository institution and a subsidiary of a depository institution may not routinely manage or operate a portfolio company in which an affiliated af·fil·i·ate v. af·fil·i·at·ed, af·fil·i·at·ing, af·fil·i·ates v.tr. 1. To adopt or accept as a member, subordinate associate, or branch: company owns or controls an interest under this subpart. (2) Definition applying provisions governing routine management or operation. For purposes of this section other than paragraph (e) and for purposes of section 225.173(d), a financial holding company includes a depository institution controlled by the financial holding company and a subsidiary of such a depository institution. (3) Exception for certain subsidiaries of depository institutions. For purposes of paragraph (e) of this section, a financial holding company includes a financial subsidiary held in accordance Accordance is Bible Study Software for Macintosh developed by OakTree Software, Inc.[] As well as a standalone program, it is the base software packaged by Zondervan in their Bible Study suites for Macintosh. with section 5136A of the Revised Statutes A body of statutes that have been revised, collected, arranged in order, and reenacted as a whole. The legal title of the collection of compiled laws of the United States, as well as some of the individual states. (12 U.S.C. 24a) or section 46 of the Federal Deposit Insurance Act (12 U.S.C. 1831w), and a subsidiary that is a small business investment company and that is held in accordance with the Small Business Investment Act (15 U.S.C. 661 et seq.), and such a subsidiary may, in accordance with the limitations set forth in this section, routinely manage or operate a portfolio company in which an affiliated company owns or controls an interest under this subpart. Section 225.172--What are the holding periods permitted for merchant banking investments? (a) Must investments be made for resale? A financial holding company may own or control shares, assets and ownership interests pursuant to this subpart only for a period of time to enable the sale or disposition thereof on a reasonable basis consistent with the financial viability of the financial holding company's merchant banking investment activities. (b) What period of time is generally permitted for holding merchant banking investments? (1) In general. Except as provided in this section or section 225.173, a financial holding company may not, directly or indirectly, own, control or hold any share, asset or ownership interest pursuant to this subpart for a period that exceeds ten years. (2) Ownership interests acquired from or transferred to companies held under this subpart. For purposes of paragraph (b)(1) of this section, shares, assets or ownership interests: (i) Acquired by a financial holding company from a company in which the financial holding company held an interest under this subpart will be considered to have been acquired by the financial holding company on the date that the share, asset or ownership interest was acquired by the company; and (ii) Acquired by a company from a financial holding company will be considered to have been acquired by the company on the date that the share, asset or ownership interest was acquired by the financial holding company if(A) (A) The financial holding company held the share, asset, or ownership interest under this subpart; and (B) The financial holding company holds an interest in the acquiring company under this subpart. (3) Interests previously held by a financial holding company under limited authority. For purposes of paragraph (b)(1) of this section, any shares, assets, or ownership interests previously owned or controlled, directly or indirectly, by a financial holding company under any other provision of the Federal banking laws that imposes a limited holding period will if acquired under this subpart be considered to have been acquired by the financial holding company under this subpart on the date the financial holding company first acquired ownership or control of the shares, assets or ownership interests under such other provision of law. For purposes of this paragraph (b)(3), a financial holding company includes a depository institution controlled by the financial holding company and any subsidiary of such a depository institution. (4) Approval required to hold interests hem in hem in Verb to surround and prevent from moving Verb 1. hem in - surround in a restrictive manner; "The building was hemmed in by flowers" excess of time limit. A financial holding company may seek Board approval to own, control or hold shares, assets or ownership interests of a company under this subpart for a period that exceeds the period specified spec·i·fy tr.v. spec·i·fied, spec·i·fy·ing, spec·i·fies 1. To state explicitly or in detail: specified the amount needed. 2. To include in a specification. 3. in paragraph (b)(1) of this section. A request for approval must: (i) Be submitted to the Board at least 90 days prior to the expiration EXPIRATION. Cessation; end. As, the expiration of, a lease, of a contract, or statute. 2. In general, the expiration of a contract puts an end to all the engagements of the parties, except to those which arise from the non- fulfillment of obligations created of the applicable time period; (ii) Provide the reasons for the request, including information that addresses the factors in paragraph (b)(5) of this section; and (iii) Explain the financial holding company's plan for divesting the shares, assets or ownership interests. (5) Factors governing Board Noun 1. governing board - a board that manages the affairs of an institution board - a committee having supervisory powers; "the board has seven members" determinations. In reviewing any proposal under paragraph (b)(4) of this section, the Board may consider all the facts and circumstances CIRCUMSTANCES, evidence. The particulars which accompany a fact. 2. The facts proved are either possible or impossible, ordinary and probable, or extraordinary and improbable, recent or ancient; they may have happened near us, or afar off; they are public or related to the investment, including: (i) The cost to the financial holding company of disposing of the investment within the applicable period; (ii) The total exposure of the financial holding company to the company and the risks that disposing of the investment may pose to the financial holding company; (iii) Market conditions; (iv) The nature of the portfolio company's business; (v) The extent and history of involvement by the financial holding company in the management and operations of the company; and (vi) The average holding period of the financial holding company's merchant banking investments. (6) Restrictions applicable to investments held beyond time period. A financial holding company that directly or indirectly owns, controls or holds any share, asset or ownership interest of a company under this subpart for a total period that exceeds the period specified in paragraph (b)(1) of this section must: (i) For purposes of determining the financial holding company's regulatory capital, apply to the financial holding company's adjusted carrying value Carrying Value Also know as "book value," it is a company's total assets minus intangible assets and liabilities, such as debt. Notes: This is different than market value, as it can be higher or lower depending on the circumstances. of such shares, assets, or ownership interests a capital charge determined by the Board that must be: (A) Higher than the maximum marginal (jargon) marginal - 1. Extremely small. "A marginal increase in core can decrease GC time drastically." In everyday terms, this means that it is a lot easier to clean off your desk if you have a spare place to put some of the junk while you sort through it. 2. Tier 1 capital Tier 1 Capital A term used to describe the capital adequacy of a bank. Tier I capital is core capital, this includes equity capital and disclosed reserves. Notes: Equity capital includes instruments that can't be redeemed at the option of the holder. charge applicable under the Board's capital adequacy rules or guidelines (see 12 C.F.R. 225 Appendix appendix, small, worm-shaped blind tube, about 3 in. (7.6 cm) long and 1-4 in. to 1 in. (.64–2.54 cm) thick, projecting from the cecum (part of the large intestine) on the right side of the lower abdominal cavity. A) to merchant banking investments held by that financial holding company; and (B) In no event less than 25 percent of the adjusted carrying value of the investment; and (ii) Abide by any other restrictions that the Board may impose in connection with granting approval under paragraph (b)(4) of this section. Section 225.173--How are investments in private equity funds treated under this subpart? (a) What is a private equity fund? For purposes of this subpart, a "private equity fund" is any company that: (1) Is formed for the purpose of and is engaged exclusively in the business of investing in shares, assets, and ownership interests of financial and non-financial companies for resale or other disposition; (2) Is not an operating company operating company A business that engages in transactions with outsiders. ; (3) No more than 25 percent of the total equity of which is held, owned or controlled, directly or indirectly, by the financial holding company and its directors, officers, employees and principal shareholders; (4) Has a maximum term of not more than 15 years; and (5) Is not formed or operated for the purpose of making investments inconsistent Reciprocally contradictory or repugnant. Things are said to be inconsistent when they are contrary to each other to the extent that one implies the negation of the other. with the authority granted under section 4(k)(4)(H) of the Bank Holding Company Act (12 U.S.C. 1843(k)(4)(H)) or evading the limitations governing merchant banking investments contained in this subpart. (b) What form may a private equity fund take? A private equity fund may be a corporation, partnership, limited liability company or other type of company that issues ownership interests in any form. (c) What is the holding period permitted for interests in private equity funds? (1) In general. A financial holding company may own, control or hold any interest in a private equity fund under this subpart and any interest in a portfolio company that is owned or controlled by a private equity fund in which the financial holding company owns or controls any interest under this subpart for the duration of the fund, up to a maximum of 15 years. (2) Request to hold interest for longer period. A financial holding company may seek Board approval to own, control or hold an interest in or held through a private equity fund for a period longer than the duration of the fund in accordance with section 225.172(b) of this subpart. (3) Application of rules. The rules described in section 225.172(b)(2) and (3) governing holding periods of interests acquired, transferred or previously held by a financial holding company apply to interests in, held through, or acquired from a private equity fund. (d) How do the restrictions on routine management and operation apply to private equity funds and investments held through a private equity fund? (1) Portfolio companies held through a private equity fund. A financial holding company may not routinely manage or operate a portfolio company that is owned or controlled by a private equity fund in which the financial holding company owns or controls any interest under this subpart, except as permitted under section 225.171 (e). (2) Private equity funds controlled by a financial holding company. A private equity fund that is controlled by a financial holding company may not routinely manage or operate a portfolio company, except as permitted under section 225.171 (e). (3) Private equity funds that are not controlled by a financial holding company. A private equity fund may routinely manage or operate a portfolio company so long as no financial holding company controls the private equity fund or as permitted under section 225.171 (e). (4) When does a financial holding company control a private equity fund? A financial holding company controls a private equity fund for purposes of this subpart if the financial holding company, including any director, officer, employee or principal shareholder of the financial holding company: (i) Serves as a general partner, managing member, or trustee A user or group of users that has been given access rights to files on a network server. See also TRUSTe. of the private equity fund (or serves in a similar role with respect to the private equity fund); (ii) Owns or controls 25 percent or more of any class of voting shares Voting Shares Shares that give the stockholder the right to vote on matters of corporate policy making as well as who will compose the members of the board of directors. Notes: Different classes of shares, such as preferred stock, sometimes don't allow for voting rights. or similar interests in the private equity fund; (iii) In any manner selects, controls or constitutes a majority of the directors, trustees or management of the private equity fund; or (iv) Owns or controls more than 5 percent of any class of voting shares or similar interests in the private equity fund and is the investment adviser to the fund. Section 225.174--What aggregate thresholds apply to merchant banking investments? (a) In general. A financial holding company may not, without Board approval, directly or indirectly acquire any additional shares, assets or ownership interests under this subpart or make any additional capital contribution to any company the shares, assets or ownership interests of which are held by the financial holding company under this subpart if the aggregate carrying value of all merchant banking investments held by the financial holding company under this subpart exceeds: (1) 30 percent of the Tier 1 capital of the financial holding company; or (2) After excluding interests in private equity funds, 20 percent of the Tier 1 capital of the financial holding company. (b) How do these thresholds apply to a private equity fund? Paragraph (a) of this section applies to the interest acquired or controlled by the financial holding company under this subpart in a private equity fund. Paragraph (a) of this section does not apply to any interest in a company held by a private equity fund or to any interest held by a person that is not affiliated with the financial holding company. (c) How long do these thresholds remain in effect? This section 225.174 shall cease to be effective on the date that a final rule issued by the Board that specifically addresses the appropriate regulatory capital treatment of merchant banking investments becomes effective. Section 225.175 What risk management, record keeping and reporting policies are required to make merchant banking investments? (a) What internal controls and records are necessary? (1) General. A financial holding company, including a private equity fund controlled by a financial holding company, that makes investments under this subpart must establish and maintain policies, procedures, records and systems reasonably designed to conduct, monitor and manage such investment activities and the risks associated with such investment activities in a safe and sound manner, including policies, procedures, records and systems reasonably designed to: (i) Monitor and assess the carrying value, market value and performance of each investment and the aggregate portfolio; (ii) Identify and manage the market, credit, concentration and other risks associated with such investments; (iii) Identify, monitor and assess the terms, amounts and risks arising from transactions and relationships (including contingent fees Payment to an attorney for legal services that depends, or is contingent, upon there being some recovery or award in the case. The payment is then a percentage of the amount recovered—such as 25 percent if the matter is settled, or 30 percent if it proceeds to trial. or contingent interests contingent interest n. an interest in real property which, according to the deed (or a will or trust), a party will receive only if a certain event occurs or certain circumstances happen. ) with each company in which the financial holding company holds an interest under this subpart; (iv) Ensure the maintenance of corporate separateness between the financial holding company and each company in which the financial holding company holds an interest under this subpart and protect the financial holding company and its depository institution subsidiaries from legal liability for the operations conducted and financial obligations of each such company; and (v) Ensure compliance with this part and any other provisions of law governing transactions and relationships with companies in which the financial holding company holds an interest under this subpart (e.g., fiduciary fiduciary (fĭd  `shēĕ'rē), in law, a person who is obliged to discharge faithfully a responsibility of trust toward another. principles or sections 23A and 23B of the Federal Reserve Act (12 U.S.C. 371c, 371 c-1), if applicable). (2) Availability of records. A financial holding company must make the policies, procedures and records required by paragraph (a)(1) of this section available to the Board or the appropriate Reserve Bank upon request. (b) What periodic reports must be filed? A financial holding company must provide reports to the appropriate Reserve Bank in such format and at such times as the Board may prescribe pre·scribe v. To give directions, either orally or in writing, for the preparation and administration of a remedy to be used in the treatment of a disease. . (c) Is notice required for the acquisition of companies? (1) Fulfillment ful·fill also ful·fil tr.v. ful·filled, ful·fill·ing, ful·fills also ful·fils 1. To bring into actuality; effect: fulfilled their promises. 2. of statutory notice requirement. Except as required in paragraph (c)(2) of this section, no post-acquisition notice under section 4(k)(6) of the Bank Holding Company Act (12 U.S.C. 1843(k)(6)) is required by a financial holding company in connection with an investment made under this subpart if the financial holding company has previously filed a notice under section 225.87 indicating that it had commenced merchant banking investment activities under this subpart. (2) Notice of large individual investments. A financial holding company must provide written notice to the Board on the appropriate form within 30 days after acquiring more than 5 percent of the voting shares, assets or ownership interests of any company under this subpart, including an interest in a private equity fund, at a total cost to the financial holding company that exceeds the lesser of 5 percent of the Tier 1 capital of the financial holding company or $200 million. Section 225.176--How do the statutory cross marketing and sections 23A and B limitations apply to merchant banking investments? (a) Are cross marketing activities prohibited? (1) In general. A depository institution, including a subsidiary of a depository institution, controlled by a financial holding company may not: (i) Offer or market, directly or through any arrangement, any product or service of any company if more than 5 percent of the company's voting shares, assets or ownership interests are owned or controlled by the financial holding company pursuant to this subpart; or (ii) Allow any product or service of the depository institution, including any product or service of a subsidiary of the depository institution, to be offered or marketed, directly or through any arrangement, by or through any company described in paragraph (a)(l)(i) of this section. (2) How are certain subsidiaries treated? For purposes of paragraph (a)(1) of this section, a subsidiary of a depository institution does not include a financial subsidiary held in accordance with section 5136A of the Revised Statutes (12 U.S.C. 24a) or section 46 of the Federal Deposit Insurance Act. (12 U.S.C.1831w), any company held by a company owned in accordance with section 25 or 25A of the Federal Reserve Act (12 U.S.C. 601 et seq.; 12 U.S.C. 611 et seq.), or any company held by a small business investment company owned in accordance with the Small Business Investment Act of 1958 (15 U.S.C. 661 et seq.). (3) How do the cross marketing restrictions apply to private equity funds? The restriction restriction - A bug or design error that limits a program's capabilities, and which is sufficiently egregious that nobody can quite work up enough nerve to describe it as a feature. contained in paragraph (a)(1) of this section does not apply to: (i) Portfolio companies held by a private equity fund that the financial holding company does not control; or (ii) The sale, offer or marketing of any interest in a private equity fund, whether or not controlled by the financial holding company. (b) When are companies held under section 4(k)(4)(H) affiliates under sections 23A and B? (1) Rebuttable presumption A conclusion as to the existence or nonexistence of a fact that a judge or jury must draw when certain evidence has been introduced and admitted as true in a lawsuit but that can be contradicted by evidence to the contrary. of control. The following rebuttable presumption of control shall apply for purposes of sections 23A and 23B of the Federal Reserve Act (12 U.S.C. 371c, 371c-1): if a financial holding company directly or indirectly owns or controls more than 15 percent of the total equity of a company pursuant to this subpart, the company shall be presumed to be an affiliate of any member bank that is affiliated with the financial holding company. (2) Request to rebut presumption. A financial holding company may rebut this presumption by providing information acceptable to the Board demonstrating that the financial holding company does not control the company. (3) Presumptions that control does not exist. Absent evidence to the contrary, the presumption in paragraph (b)(1) of this section will be considered to have been rebutted without Board approval under paragraph (b)(2) of this section if any one of the following requirements are met: (i) No officer, director or employee of the financial holding company serves as a director, trustee, or general partner (or individual exercising similar functions) of the company; (ii) A person that is not affiliated or associated with the financial holding company owns or controls a greater percentage of the equity capital of the portfolio company than the amount owned or controlled by the financial holding company, and no more than one officer or employee of the holding company serves as a director or trustee (or individual exercising similar functions) of the company; or (iii) A person that is not affiliated or associated with the financial holding company owns or controls more than 50 percent of the voting shares of the portfolio company, and officers and employees of the holding company do not constitute a majority of the directors or trustees (or individuals exercising similar functions) of the company. (4) Convertible instruments. For purposes of paragraph (b)(1) of this section, equity capital includes options, warrants and any other instrument convertible into equity capital. (5) Application of presumption to private equity funds. A financial holding company will not be presumed to own or control the equity capital of a company for purposes of paragraph (b)(1) of this section solely by virtue of an investment made by the financial holding company in a private equity fund that owns or controls the equity capital of the company unless the financial holding company controls the private equity fund as described in section 225.173(d)(4). (6) Application of sections 23A and B to U.S. branches and agencies of foreign banks. Sections 23A and 23B of the Federal Reserve Act (12 U.S.C. 371c, 371c-1) shall apply to all covered transactions between each U.S. branch and agency of a foreign bank that acquires or controls, or that is affiliated with a company that acquires or controls, merchant banking investments and: (i) Any portfolio company that the foreign bank or affiliated company controls or is presumed to control under paragraph (b)(1) of this section; and (ii) Any company that the foreign bank or affiliated company controls or is presumed to control under paragraph (b)(1) of this section if the company is engaged in acquiring or controlling merchant banking investments and the proceeds of the covered transaction are used for the purpose of funding the company's merchant banking investment activities. Section 225.177--Definitions. (a) What do references to a financial holding company include? (1) Except as otherwise expressly provided, the term "financial holding company" as used in this subpart means the financial holding company and all of its subsidiaries, including a private equity fund or other fund controlled by the financial holding company. (2) Except as otherwise expressly provided, the term "financial holding company" does not include a depository institution or subsidiary of a depository institution or any portfolio company controlled directly or indirectly by the financial holding company. (b) What do references to a depository institution include ? For purposes of this subpart, the term "depository institution" includes a U.S. branch or agency of a foreign bank. (c) What is a portfolio company? A portfolio company is any company or entity: (1) That is engaged in any activity not authorized for the financial holding company under section 4 of the Bank Holding Company Act (12 U.S.C. 1843); and (2) Any shares, assets or ownership interests of which are held, owned or controlled directly or indirectly by the financial holding company pursuant to this subpart, including through a private equity fund that the financial holding company controls. d) Who are the executive officers of a company? (1) An executive officer of a company is any person who participates or has the authority to participate (other than in the capacity as a director) in major policymaking pol·i·cy·mak·ing or pol·i·cy-mak·ing n. High-level development of policy, especially official government policy. adj. Of, relating to, or involving the making of high-level policy: functions of the company, whether or not the officer has an official title, the title designates the officer as an assistant, or the officer serves without salary or other compensation. (2) The term "executive officer" does not include: (i) Any person, including a person with an official title, who may exercise a certain measure of discretion in the performance of his duties, including the discretion to make decisions in the ordinary course of the company's business, but who does not participate in the determination of major policies of the company and whose decisions are limited by policy standards fixed by senior management of the company; or (ii) Any person who is excluded from participating (other than in the capacity of a director) in major policymaking functions of the company by resolution of the board of directors or by the bylaws The rules and regulations enacted by an association or a corporation to provide a framework for its operation and management. Bylaws may specify the qualifications, rights, and liabilities of membership, and the powers, duties, and grounds for the dissolution of an of the company and who does not in fact participate in such policymaking functions. |
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