Federal Reserve System § 225.103

(b) It was asked whether it makes § 225.103 Bank holding company ac- any difference that the shares of Y quiring stock by dividends, stock Company are not owned directly by X splits or exercise of rights. Corporation but instead are owned (a) The Board of Governors has been through Subsidiaries A and B. X Cor- asked whether a bank holding company poration owns all the voting shares of may receive bank stock dividends or Subsidiary A, which owns one-half of participate in bank stock splits with- the voting shares of Subsidiary B. Sub- out the Board’s prior approval, and sidiaries A and B each own one-third of whether such a company may exercise, the voting shares of Y Company. without the Board’s prior approval, (c) Section 4(c)(5) is divided into two rights to subscribe to new stock issued parts. The first part exempts the own- by banks in which the holding com- ership of securities of nonbanking com- pany already owns stock. panies when the securities do not in- (b) Neither a stock dividend nor a clude more than 5 percent of the voting stock split results in any change in a securities of the nonbanking company stockholder’s proportional interest in and do not have a value greater than 5 the issuing company or any increase in percent of the value of the total assets the assets of that company. Such a of the bank holding company. The sec- transaction would have no effect upon ond part exempts the ownership of se- the extent of a holding company’s con- curities of an investment company trol of the bank involved; and none of which is not a bank holding company the five factors required by the Bank and is not engaged in any business Holding Company Act to be considered other than investing in securities, pro- by the Board in approving a stock ac- vided the securities held by the invest- quisition would seem to have any ap- ment company meet the 5 percent tests plication. In view of the objectives and mentioned above. purposes of the act, the word ‘‘acquire’’ (d) In § 225.101, the Board expressed would not seem reasonably to include the opinion that the first exemption in transactions of this kind. section 4(c)(5): (c) On the other hand, the exercise by * * * is as applicable to such shares when a bank holding company of the right to held by a banking subsidiary of a bank hold- subscribe to an issue of additional ing company as when held directly by the stock of a bank could result in an in- bank holding company itself. While the ex- crease in the holding company’s pro- emption specifically refers only to shares portional interest in the bank. The held or acquired by the bank holding com- holding company would voluntarily pany, the prohibition of the Act against re- pay additional funds for the extra tention of nonbanking interests applies to indirect as well as direct ownership of shares shares and would ‘‘acquire’’ the addi- of a nonbanking company, and, in the ab- tional stock even under a narrow sence of a clear mandate to the contrary, meaning of that term. Moreover, the any exception to this prohibition should be exercise of such rights would cause the given equal breadth with the prohibition. assets of the issuing company to be in- Any other interpretation would lead to un- creased and in a sense, therefore, the warranted results. ‘‘size or extent’’ of the bank holding (e) The Board is of the view that the company system would be expanded. principles stated in that opinion are (d) In the circumstances, it is the also applicable to the second exemp- Board’s opinion that receipt of bank tion in section 4(c)(5), and that they stock by means of a stock dividend or apply whether or not the subsidiary stock split, assuming no change in the owning the shares is a banking sub- class of stock, does not require the sidiary. Accordingly, on the basis of Board’s prior approval under the act, the facts presented, the Board is of the but that purchase of bank stock by a opinion that the second exemption in bank holding company through the ex- section 4(c)(5) applies to the indirect ercise of rights does require the ownership by X Corporation of shares Board’s prior approval, unless one of of Y Company through Subsidiaries A the exceptions set forth in section 3(a) and B. is applicable. [22 FR 2533, Apr. 13, 1957. Redesignated at 36 [22 FR 7461, Sept. 19, 1957. Redesignated at 36 FR 21666, Nov. 12, 1971] FR 21666, Nov. 12, 1971]

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