Federal Reserve Postpones Implementation of Revised ‘Control’ Framework in Response to COVID-19 Pandemic


On March 31, 2020, the Board of Governors of the Federal Reserve System (the “Federal Reserve”) delayed implementation of a previously adopted final rule (the “Final Rule”) that established a framework for how it will make determinations of “control” under the U.S. Bank Holding Company Act of 1956 (the “BHCA”). The Federal Reserve delayed the Final Rule in response to the ongoing COVID-19 pandemic, citing “dislocations in the U.S. economy” and the desire by some banking organization to consult with the Federal Reserve on the effect of the Final Rule on certain of their investments and relationships. The postponement will permit banks to focus on their responses to the COVID-19 pandemic and implement the various programs that the Federal Reserve and other agencies have created in response to the pandemic. The Final Rule, which was originally intended to go into effect on April 1, 2020, will now become effective on September 30, 2020. We nonetheless expect that many banks prudently will begin to implement policies to comply with the changes discussed herein.

The Final Rule codifies a significant amount of existing Federal Reserve practice, which is currently reflected in both public guidance releases and in hundreds of fact-specific interpretations, some of which are not publicly available. The Final Rule also makes a number of “targeted adjustments” generally intended to liberalize the current practice on BHCA control determinations, although in some cases the Final Rule’s approach may make BHCA control more strict rather than the opposite. The Final Rule represents a significant step toward enhancing the transparency of the Federal Reserve’s approach to analyzing control under the BHCA and could enhance the ability of bank holding companies (“BHCs”) and non-U.S. banks with U.S. branches or agencies (commonly referred to as “foreign banking organizations” or “FBOs”) to raise capital and make investments in fintech companies, among other things.

Key Takeaways:
  • The Federal Reserve has postponed effectiveness of its new control framework from April 1, 2020 to September 30, 2020 in response to the COVID-19 pandemic.
  • The Federal Reserve’s “control” framework codifies much of the agency’s existing precedents and guidance on questions of control under the BHCA.
  • The framework also modifies existing control precedents intended to permit investors greater latitude to invest and be involved with management decisions of companies by establishing specific presumptions of control and non-control under the BHCA.
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