12 CFR 208.73 – What additional provisions are applicable to state member banks with financial subsidiaries?
(a) Capital deduction required prior to January 1, 2015, for state member banks that are not advanced approaches banks (as defined in § 208.41). A state member bank that controls or holds an interest in a financial subsidiary must comply with the following rules in determining its compliance with applicable regulatory capital standards (including the well capitalized standard of § 208.71(a)(1)):
(1) The bank must not consolidate the assets and liabilities of any financial subsidiary with those of the bank.
(2) For purposes of determining the bank’s risk-based capital ratios under appendix A of this part, the bank must—
(i) Deduct 50 percent of the aggregate amount of its outstanding equity investment (including retained earnings) in all financial subsidiaries from both the bank’s Tier 1 capital and Tier 2 capital; and
(ii) Deduct the entire amount of the bank’s outstanding equity investment (including retained earnings) in all financial subsidiaries from the bank’s risk-weighted assets.
(3) For purposes of determining the bank’s leverage capital ratio under appendix B of this part, the bank must—
(i) Deduct 50 percent of the aggregate amount of its outstanding equity investment (including retained earnings) in all financial subsidiaries from the bank’s Tier 1 capital; and
(ii) Deduct the entire amount of the bank’s outstanding equity investment (including retained earnings) in all financial subsidiaries from the bank’s average total assets.
(4) For purposes of determining the bank’s ratio of tangible equity to total assets under § 208.43(b)(5), the bank must deduct the entire amount of the bank’s outstanding equity investment (including retained earnings) in all financial subsidiaries from the bank’s tangible equity and total assets.
(5) If the deduction from Tier 2 capital required by paragraph (a)(2)(i) of this section exceeds the bank’s Tier 2 capital, any excess must be deducted from the bank’s Tier 1 capital.
(b) Capital requirements for advanced approaches banks (as defined in § 208.41) and, after January 1, 2015, all state member banks. Beginning on January 1, 2014, for a state member bank that is an advanced approaches bank, and beginning on January 1, 2015 for all state member banks, a state member bank that controls or holds an interest in a financial subsidiary must comply with the rules set forth in § 217.22(a)(7) of Regulation Q (12 CFR 217.22(a)(7)) in determining its compliance with applicable regulatory capital standards (including the well capitalized standard of § 208.71(a)(1)).
(c) Financial statement disclosure of capital deduction. Any published financial statement of a state member bank that controls or holds an interest in a financial subsidiary must, in addition to providing information prepared in accordance with generally accepted accounting principles, separately present financial information for the bank reflecting the capital deduction and adjustments required by paragraph (a) of this section.
(d) Safeguards for the bank. A state member bank that establishes, controls or holds an interest in a financial subsidiary must:
(1) Establish and maintain procedures for identifying and managing financial and operational risks within the state member bank and the financial subsidiary that adequately protect the state member bank from such risks; and
(2) Establish and maintain reasonable policies and procedures to preserve the separate corporate identity and limited liability of the state member bank and the financial subsidiary.
(e) Application of Sections 23A and 23B of the Federal Reserve Act. For purposes of sections 23A and 23B of the Federal Reserve Act (12 U.S.C. § 371c, 371c-1):
(1) A financial subsidiary of a state member bank shall be deemed an affiliate, and not a subsidiary, of the bank;
(2) The restrictions contained in section 23A(a)(1)(A) of the Federal Reserve Act (12 U.S.C. § 371c(a)(1)(A)) shall not apply with respect to covered transactions between the bank and any individual financial subsidiary of the bank;
(3) The bank’s investment in a financial subsidiary shall not include retained earnings of the financial subsidiary;
(4) Any purchase of, or investment in, the securities of a financial subsidiary by an affiliate of the bank will be considered to be a purchase of, or investment in, such securities by the bank; and
(5) Any extension of credit by an affiliate of the bank to a financial subsidiary of the bank will be considered to be an extension of credit by the bank to the financial subsidiary if the Board determines that such treatment is necessary or appropriate to prevent evasions of the Federal Reserve Act and the Gramm-Leach-Bliley Act.
(f) Application of anti-tying prohibitions. A financial subsidiary of a state member bank shall be deemed a subsidiary of a bank holding company and not a subsidiary of the bank for purposes of the anti-tying prohibitions of section 106 of the Bank Holding Company Act Amendments of 1970 (12 U.S.C. § 1971 et seq.).