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Sunday, November 23, 2014

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How to Become an FHC

Detailed below are questions and answers that staff throughout the Federal Reserve System have considered since the enactment of the legislation. Please consult your legal counsel before making decisions related to the Gramm-Leach-Bliley Act.

FHC Declaration

Should a BHC become an FHC?

The decision to become an FHC depends upon the company's strategic business plan, capital position and projections, management strength, risk management systems, expected debt ratings, and accounting and tax consequences, among other issues. Becoming an FHC is ultimately the decision of senior management and the board of directors.

While FHC status allows a BHC to engage in a variety of financial and complementary activities, failure to maintain FHC criteria could significantly affect the BHC's strategic business plan. If the organization does not have immediate plans to engage in financially related activities, the BHC may want to delay submitting a declaration to become an FHC.

How does a domestic BHC apply to become an FHC?

Once senior management and the directorate have made the decision to apply for FHC status, a domestic BHC must file a written declaration with the appropriate Federal Reserve Bank and forward a copy of their request to Federal Reserve Board staff. The written declaration must contain the following information:

  • a statement that the BHC elects to be an FHC;
  • the name and head office address of the company and each depository institution controlled by the company;
  • a certification that all depository institutions controlled by the company are well capitalized as of the date the company files its election;
  • the capital ratios for all relevant capital measures (as defined in section 38 of the Federal Deposit Insurance Act) as of the close of the previous quarter for each depository institution controlled by the company on the date the company files its election; and
  • a certification that all depository institutions controlled by the company are well managed as of the date the company files its election. 1

The declaration must be signed by an official or representative with authority to bind the company.

The declaration should be sent to the following individuals:

  • Federal Reserve Bank of Philadelphia
    H. Robert Tillman, Assistant Vice President
    Supervision, Regulation and Credit
    Federal Reserve Bank of Philadelphia
    Ten Independence Mall - 7SE
    Philadelphia, PA 19106
  • Federal Reserve Board
    Lisa DeFerrari, Assistant Director
    Division of Banking Supervision and Regulation
    Board of Governors of the Federal Reserve System
    20th and C Streets, NW
    Washington, D.C. 20551

Although not required to be included within the declaration, all insured depository institutions controlled by the BHC as of the date of the filing must have a satisfactory or better CRA rating for the declaration to be effective. Any de novo insured depository institution that has not yet been examined for CRA is generally exempt from this requirement.

When does an FHC declaration become effective?

A declaration is deemed effective on the 31st day after the date the declaration was received by the responsible Federal Reserve Bank unless the Federal Reserve Bank or the Federal Reserve Board notifies the BHC that its request is ineffective. However, the Federal Reserve Board may affirmatively notify a company that its declaration is effective prior to the 30-day expiration.

The Federal Reserve Board has 30 days from the receipt of the declaration to notify a BHC that its request is ineffective. The Federal Reserve Board may find the election to be ineffective if any of the depository institutions controlled by the BHC are not well capitalized, well managed, or have a less than satisfactory CRA rating. 2

1(Federal Reserve System, SR Letter 00-1, dated February 8, 2000, Procedures to Become a Financial Holding Company and Guidelines Regarding the Initial Monitoring of Acquisitions and Commencement of New Activities by Financial Holding Companies.)

2(SR Letter 00-1)