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Federal Register / Vol. 86, No. 34 / Tuesday, February 23, 2021 / Rules and Regulations
to balance their investment decisions with the regulatory implications of certain levels of investment.
The FDIC has considered these comments and has decided to retain the definition used in the proposed rule.
First, the definition of control proposed in the NPR is consistent with the definition of control that the FDIC uses in other contexts, namely changes in bank control. The FDIC in 2015
amended its filing requirements and processing procedures for notices filed under the CBCA with respect to proposed acquisitions of State nonmember banks and certain parent companies thereof.103 Among other things, the FDICs CBCA implementing regulations adopted the best practices of the related regulations of the OCC and FRB, rendering more consistent the CBCA implementing regulations of the Federal banking agencies.
Second, the FDIC is not the Federal banking agency responsible for implementing and interpreting the BHCA and has not developed precedent for the implementation of the BHCA. In adopting the CBCA implementing regulations, the FDIC noted that it found the logic of the FRBs interpretations regarding control under the BHCA
useful in analyzing fact patterns under the CBCA, but did not adopt the FRBs interpretations, preferring instead to review each case based on the facts and circumstances presented.104
The term Covered Company meant any company that is not subject to Federal consolidated supervision by the FRB and that, directly or indirectly, controls an industrial bank i as a result of a change in bank control under section 7j of the FDI Act,105 ii as a result of a merger transaction pursuant to section 18c of the FDI Act,106 or iii that is granted deposit insurance under section 6 of the FDI Act,107 in each case after the effective date of the rule.
Under these provisions, a company would control an industrial bank if the company would have the power, directly or indirectly, i to vote 25
percent or more of any class of voting shares of any industrial bank or any company that controls the industrial bank i.e., a parent company, or ii to direct the management or policies of any industrial bank or any parent company. In addition, the FDIC
presumes that a company would have the power to direct the management or 103 80 FR 65889 Oct. 28, 2015. The FDIC
received no comments on its approach.
104 80 FR 65889, 65893.
105 12 U.S.C. 1817j.
106 12 U.S.C. 1828c.
107 12 U.S.C. 1816.

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policies of any industrial bank or any parent company if the company will, directly or indirectly, own, control, or hold with power to vote at least 10
percent of any class of voting securities of any industrial bank or any parent company, and either the industrial banks shares or the parent companys shares are registered under section 12 of the Securities Exchange Act of 1934, or no other person including a company will own, control, or hold with power to vote a greater percentage of any class of voting securities. If two or more companies, not acting in concert, will each have the same percentage, each such company will have control. As noted above, control of an industrial bank can be indirect. For example, company A may control company B, which in turn may control company C
which may control an industrial bank.
Company A and company B would each have indirect control of the industrial bank, and company C would have direct control. As a result, the industrial bank would be a subsidiary of companies A, B, and C.
One commenter observed that the Supplementary Information for the proposed rule characterized BHCs and SLHCs as generally prohibited from engaging in commercial activities.108
This commenter noted that grandfathered unitary SLHCs are permitted to engage in certain grandfathered activities, which may include commercial activities and requested that the FDIC clarify its position with respect to grandfathered unitary SLHCs. The FDIC recognizes that certain grandfathered unitary SLHCs may be able to engage in commercial activities. Further, as the FDIC intends to apply the final rule prospectively, a grandfathered unitary SLHC that is subject to Federal consolidated supervision would not be subject to the final rule.
In response to question 5 in the NPR, commenters were split on whether to require a Covered Company to form an intermediate holding company from which to conduct its financial activities.
One commenter suggested that there would be limited benefit to requiring a Covered Company that conducts activities other than financial activities to conduct some or all of its financial activities including ownership and control of an industrial bank through an intermediate holding company, observing that any potential benefit could be significantly outweighed by the complexity and cost of implementing an intermediate holding company structure, and may only serve 108 See
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85 FR at 1777273.

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to organizationally distance the bank from the primary source of strength, most commonly the top tier parent company. Another commenter strongly opposed the possible requirement, arguing that in many cases it would not make sense to create a corporate structure in service of an industrial bank that is a small part of the overall activities or assets of a Covered Company.
Another commenter argued that complex diversified Covered Companies that conduct nonfinancial activities must be required to structure their financial activities under an intermediate holding company so that the intermediate holding company may be subjected to enhanced supervision.
The final rule will not require a Covered Company that conducts activities other than financial activities to conduct some or all of its financial activities including ownership and control of an industrial bank through an intermediate holding company.109
The FDIC believes that such a structure is not required to adequately supervise industrial banks and their parent companies.
The final rule includes the definition of Covered Company as proposed with one revision: The proposed rule defined a Covered Company as a company that is not subject to Federal consolidated supervision by the FRB and that controls an industrial bank as a result of the non-objection to a change in bank control, or approval of a merger transaction or deposit insurance after the effective date. The final rule applies where such a non-objection or approval occurs on or after the effective date.
This revision is not a change in FDIC
policy, but rather a recognition that the effective date is commonly understood to be the date upon which a rule is effective.110
The FDIC received no comment on a number of definitions: The terms FDI
Act, filing, FRB, industrial bank, and senior executive officer.
The final rule adopts these terms as proposed.
In the NPR, the FDIC requested comment on whether the rule should include other types of nonbank banks, in addition to industrial banks. One commenter stated that all bank and financial service companies, including industrial banks and other institutions that have been excluded from the BHCA
definition of bank such as credit card 109 The FDIC may consider requiring an intermediate holding company in the case of a Covered Company that is not located in the United States and presents unique circumstances.
110 See also supra note 96.

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