Bank Holding Company
Supervision Manual
July 2009 Update
The July 2009 update to the Bank Holding Company Supervision Manual, has been published (supplement no. 36). The manual comprises the Federal Reserve System's regulatory, supervisory and inspection guidance for bank holding companies (BHCs). The new supplement includes guidance on the following subjects:
- Limitations on Intercompany Transactions. Section 2020.1, "Intercompany Transactions (Transactions Between Member Banks and Their Affiliates--Sections 23A and 23B of the Federal Reserve Act)" has been revised to discuss further these statutes and to include their respective Regulation W requirements. (See SR letter 03-2.) Sections 23A and 23B of the Federal Reserve Act) and Regulation W limit the risks to an insured depository institution (IDI) as a result of transactions between the IDI and its affiliates, including the BHC and its subsidiaries. The statute and rule impose quantitative and qualitative limits on the ability of an IDI to extend credit to, or engage in certain other transactions with, an affiliate. It is important that examiners and other supervisory staff review intercompany transactions for compliance with these statutes and Regulation W. The section includes examiner guidance on an inspection's review of affiliate transactions. Revised inspection objectives and inspection procedures are included.
- Market Risk Rule. The section 4060.3, "Consolidated Capital (Examiners' Guidelines for Assessing the Capital Adequacy of BHCs)" was revised to include a reference to the guidance issued in SR letter 09-1, "Application of the Market Risk Rule in Bank Holding Companies and State Member Banks." This guidance is intended to assist BHCs in assessing market risk, provide clarification on certain aspects of the rule, and ensure that they apply the market risk rule (see 12 CFR 225, appendix E) appropriately and consistently. The letter discusses the core requirements of the market risk rule, its capital computation requirements and additional Federal Reserve requirements for a banking organization to use its value-at-risk measurement model.
- Payment of Dividends, Stock Redemptions, and Stock Repurchases. A new section 4060.9, "Consolidated Capital Planning Processes (Payment of Dividends, Stock Redemptions, and Stock Repurchases at Bank Holding Companies)," conveys supervisory guidance that is directed to supervisory staff and BHCs. The guidance states the Federal Reserve's expectations that a BHC, among other things, will inform and consult with Federal Reserve supervisory staff sufficiently in advance of (1) declaring and paying a dividend that could raise safety and soundness concerns (for example, declaring and paying a dividend that exceeds earnings for the period for which the dividend is being paid); (2) redeeming or repurchasing regulatory capital instruments when the BHC is experiencing financial weaknesses; or (3) redeeming or repurchasing common stock or perpetual preferred stock that would result in a net reduction as of a quarter end in the amount of such equity instruments outstanding compared with the beginning of the quarter in which the redemption or repurchase occurred. See SR letter 09-4 and its attachments.
A more detailed summary of changes is included with the update package. The public may obtain the Manual and the updates (including pricing information) from Publications Fulfillment, Mail Stop N-127, Board of Governors of the Federal Reserve System, 20th and C Streets, N.W., Washington, DC 20551; telephone (202) 452-3244; or send a facsimile to (202) 728-5886.