About this Manual Section 1000.0 PURPOSE AND THE ROLE OF should not be considered a legal reference docu- GUIDANCE ment. Questions concerning the applicability of and compliance with federal laws and regula- The Bank Holding Company Supervision tions should be referred to appropriate legal Manual is prepared by Federal Reserve supervi- counsel. sion personnel to provide guidance to examiners as they conduct inspections of bank holding companies (BHCs) and their nonbank subsidi- aries as well as savings and loan holding compa- USE OF THE MANUAL nies (SLHCs). The manual is a compilation of formalized procedures and Board supervisory The Bank Holding Company Supervision policies that examiners and supervision person- Manual is presented in “sections” which have nel should follow for the supervision of these been grouped together into “parts” that have in organizations. It also discusses the relevant stat- common a central theme pertaining to holding utes, regulations, interpretations, and orders that company supervision. For example, Part I pro- pertain to holding company supervision. The vides an overview of the supervisory process of manual enhances the staff’s ability to implement holding companies. Part II is composed of sec- the Board’s inspection, supervisory, and moni- tions that discuss topics of special interest for toring activities, which is integral to the Federal supervisory review. Part III is composed of sec- Reserve’s supervision program for organiza- tions that discuss the various exemptive provi- tions operating under a holding company struc- sions to the nonbank prohibitions of the BHC ture. This manual is periodically updated on the Act. Part IV presents sections on the preparation Board’s public website to reflect the latest super- of a financial analysis. visory policy and procedures and to address The content of the sections within parts II–IV changes in industry risk-management practices.1 are grouped into four broad categories: (1) Main The Federal Reserve and the other banking Section Content (2) Inspection Objectives, (3) In- and regulatory agencies issue various types of spection Procedures, and (4) Laws, Regulations, supervisory guidance, including interagency Interpretations, and Orders. Not all of the cate- statements, advisories, bulletins, policy state- gories are presented in each section. This manual ments, questions and answers, and frequently uses a numbering system for organizing and asked questions, to their respective supervised referencing content. Content in subsections with institutions. A statute or regulation has the force headings having “tenths” or one decimal point and effect of law.2 Unlike a law or regulation, generally provide higher-level or foundational supervisory guidance does not have the force information. Content under subheadings with and effect of law, and the agencies do not take several decimal points convey more detailed enforcement actions based on supervisory guid- information. ance. Rather, supervisory guidance outlines the Where a particular topic is exclusively finan- agencies’ supervisory expectations or priorities cially related and does not involve legal consid- and articulates the agencies’ general views re- erations, the subsection on “Laws, Regulations,” garding appropriate practices for a given subject may be omitted. These procedures were de- area. Supervisory guidance often provides ex- signed for a full-scope, comprehensive inspec- amples of practices that the agencies generally tion. It is recognized that in some instances the consider consistent with safety-and-soundness procedures may not apply in their entirety to all standards or other applicable laws and regula- holding companies. Examiners should exercise tions, including those designed to protect con- supervisory judgment in completing procedures sumers. See SR letter 18-5/CA letter 18-7, “In- depending upon the characteristics of the orga- teragency Statement Clarifying Role of nization under inspection. Supervisory Guidance.” This manual is designed to provide guidance to examination and supervision personnel. It 1. https://www.federalreserve.gov/boarddocs/supmanual/ 2. Government agencies issue regulations that generally have the force and effect of law. Such regulations generally take effect only after the agency proposes the regulation to the public and responds to comments on the proposal in a final BHC Supervision Manual February 2019 rulemaking document. Page 1 About this Manual 1000.0 TYPES OF HOLDING COMPANIES Savings and Loan Holding Companies Savings and loan holding companies (SLHCs) Bank Holding Companies (Including directly or indirectly control a savings associa- Financial Holding Companies) tion. Federal savings associations (those with federal charters) are supervised by the Office of Banks are often owned or controlled by another the Comptroller of the Currency, while state- company, called a bank holding company (BHC). chartered savings associations are generally su- The Federal Reserve has supervisory and regu- pervised by the Federal Deposit Insurance Cor- latory authority for all BHCs, regardless of porationandtheircharteringstate.Besidesowning whether subsidiary banks of the holding com- federal and/or state savings associations, an pany are national banks, state member banks, or SLHC that meets capital and management re- state nonmember banks. It also has supervisory quirements and elects to be treated as a financial authority over any nonbank subsidiary of a BHC holding company may also engage in activities that is not functionally regulated by another as if it were a financial holding company that federal or state supervisor, such as a leasing controls a bank. subsidiary. Historically, SLHCs were regulated by other The Gramm-Leach-Bliley Act of 1999 per- agencies: at first, the Federal Home Loan Bank mits BHCs that meet certain criteria to become Board, and more recently, by the Office of Thrift financial holding companies (FHCs), which are Supervision (OTS). In 2010, the Dodd-Frank also under Federal Reserve’s supervisory and Wall Street Reform and Consumer Protection regulatoryauthority.FHCsengageinanexpanded Act eliminated the OTS and transferred supervi- list of activities including securities underwrit- sory and regulatory responsibilities for SLHCs ing and dealing, merchant banking, insurance to the Federal Reserve. As a result, the Federal underwriting, and the sale of insurance. When Reserve now supervises and regulates all SLHCs an FHC engages in these activities, the Federal regardless of the charters of the subsidiary sav- Reserve coordinates its supervisory efforts with ings associations. The Federal Reserve coordi- those of the subsidiary’s functional regulator— nates its supervisory efforts with the appropriate for example, the U.S. Securities and Exchange functional regulator(s) for a SLHC. Commission in the case of a broker-dealer, and state insurance regulators in the case of an insur- ance company. BHC Supervision Manual February 2019 Page 2 General Table of Contents Bank Holding Company Supervision Manual 1010.0 This general table of contents lists the major section heads for each part of the manual: 1000 About this Manual, Supervisory Process 2000 Supervisory Policy and Issues 3000 Nonbanking Activities 4000 Financial Analysis 5000 BHC Inspection Program Sections Title 1000 ABOUT THIS MANUAL, SUPERVISORY PROCESS 1000.0 About this Manual 1010.0 Table of Contents 1020.0– Reserved 1030.0 1040.0 Bank Holding Company Examination and Inspection Authority 1045.0 Supervision of Holding Companies with Total Consolidated Assets of $10 Billion or Less 1050.0 Consolidated Supervision of Bank Holding Companies and the Combined U.S. Operations of Foreign Banking Organizations 1050.1 Guidance for the Consolidated Supervision of Domestic Bank Holding Companies that are Large Complex Banking Organizations 1050.2 Guidance for the Consolidated Supervision of Regional Bank Holding Companies 1060.0 Large Financial Institution Rating System 1062.0 RFI Rating System 1063.0 Holding Company Ratings Applicability and Inspection Frequency 1065.0 Nondisclosure of Supervisory Ratings and Confidential Supervisory Information 1070.1 Communication of Supervisory Findings 2000 SUPERVISORY POLICY AND ISSUES 2000.0 Introduction to Topics for Supervisory Review 2010.0 Supervision of Subsidiaries 2010.1 Funding Policies 2010.2 Loan Administration BHC Supervision Manual February 2020 Page 1 General Table of Contents Section 1010.0 Sections Title 2010.3 Investments 2010.4 Consolidated Planning Process 2010.5 Environmental Liability 2010.6 Financial Institution Subsidiary Retail Sales of Nondeposit Investment Products 2010.7 Reserved 2010.8 Sharing of Facilities and Staff by Banking Organizations 2010.9 Required Absences from Sensitive Positions 2010.10 Internal Loan Review 2010.11 Private-Banking Functions and Activities 2010.12 Fees Involving Investments of Fiduciary Assets in Mutual Funds and Potential Conflicts Interest 2010.13 Establishing Accounts for Foreign Governments Embassies, and Political Figures 2020.0 Intercompany Transactions—Introduction 2020.1 Intercompany Transactions Between Affiliates—Sections 23A and 23B of the Federal Reserve Act 2020.2 Loan Participations—Intercompany Transactions 2020.3 Sale and Transfer of Assets 2020.4 Compensating Balances 2020.5 Dividends 2020.6 Management and Service Fees 2020.7 Transfer of Low-Quality Assets 2020.8 Reserved 2020.9 Split-Dollar Life Insurance 2030.0 Grandfather Rights—Retention and Expansion of Activities 2040.0 Commitments to the