Seal of the Board of Governors of the Federal Reserve System

WASHINGTON, D. C.  20551


SR 97-10 (APP)
April 24, 1997


SUBJECT: Guidance on Protested Proposals

                        Purpose and Scope.  The Board has delegated authority to the Reserve Banks to approve protested applications and notices if the comments meet certain criteria and if the proposal would otherwise be eligible for delegation.  The final rule adopting changes to Regulation Y1 states that supervisory guidance would be developed to identify the limited types of comments that may be considered under delegated authority.  For purposes of developing this guidance, the final rule noted the Board's intent that the vast majority of comments that have been considered by the Board in the past would continue to be considered to be substantive and would, as now, be reviewed by the Board.  Accordingly, all matters raised by a protest must clearly meet the delegation criteria described below to qualify for delegated action. Otherwise, such cases should continue to be processed for Board action.

                        As part of the changes made to Regulation Y, the Board also determined to adhere to its established rule of considering a comment involving an application or notice only if the comment is provided to the System before the expiration of the comment period.  The final rule retains the current 30 day public notice requirement for all bank acquisition proposals.  The Board has also taken a number of steps to improve public notice, including making up-to-date information available by mail, fax, and the Internet regarding proposals with public comment periods.  The public also continues to have other means of providing input on the effectiveness of an insured depository institution in meeting the convenience and needs of the community by submitting comments in connection with the on-site examination of an institution's performance under the Community Reinvestment Act ("CRA").  The Board retained the discretion to consider untimely comments, but only in extraordinary circumstances.

                        This letter provides guidance on comments in general, and on applying the delegation criteria and responding to the comments if the criteria are met.  It is important that comments be reviewed immediately on receipt and that a decision be made promptly on whether the proposal requires processing under the normal 60 day procedures.  As discussed in more detail in the guidance, Reserve Banks are encouraged to contact Board staff, and, in particular, the Legal Division, on all proposals with comments.  Board staff from different Divisions will then consult with each other, as appropriate.

  1. Timely and Substantive Comments

                            A case with a timely and substantive comment, other than a comment that supports approval of the proposal, does not qualify for processing under the delegation criteria and must be processed as a Board case under the normal 60 day procedures.

      Definition of substantive comment -- A comment is substantive unless it clearly qualifies under the delegation criteria that relate to individual customer complaints, previously decided issues, minority shareholder rights issues, frivolous or unsubstantiated claims, or issues that are not related to factors in the Bank Holding Company Act ("BHC Act"), as discussed below.

      Definition of timely comment -- A comment is timely if, on or before the last day in the comment period, it is (a) mailed first class, properly addressed, and postmarked, (b) entered into an express delivery system for the proper destination, or (c) received by the Board or the Reserve Bank.

      Extension of comment period -- The Board (but not the Reserve Banks) may either grant or deny a written request by a commenter to extend the comment period.  In particular, the Board may grant an extension of up to 15 days to a requester that has made a timely request for an application that has not been made available to the public, and will grant a joint request of an interested member of the public and the applicant for an extension for a reasonable period of time for a purpose related to a factor in the BHC Act.  An extension applies only to the particular requester, unless the Board expressly extends the comment period for all commenters.  The Reserve Bank should immediately inform the Board's Legal Division and send all extension requests to the Legal Division on receipt.  The Legal Division will coordinate with other interested Divisions regarding the request.

      In considering a request for an extension, the Board will consider the specific reasons given by the requester for being unable to file a timely comment.  For example, if a requester contends that more time is required to analyze a proposal, the Board will take into account a number of factors, including when the proposal was announced, when the regulatory filing was made available to the public, and when the request for the regulatory filing was made.  Delays beyond the time normally provided for answering a timely and reasonable request for publicly available information, or in providing information in response to timely comments, will also be considered in determining whether to grant an extension of the comment period.  Applicants are expected to provide responses to requests for information in accordance with the Board's Rules of Procedure.

      An extension of the comment period would not disqualify an otherwise qualifying proposal from consideration under the streamlined procedures or the normal 30 day procedures for delegated cases.

      Untimely comments -- An untimely comment, including a supplemental comment from a timely commenter, generally will be returned to the commenter with a brief explanation of the public comment procedures.  If appropriate, a copy of the comment should first be provided to the appropriate federal banking agency ("AFBA") for consideration.  An untimely substantive comment may be considered under extraordinary circumstances, and the Reserve Bank should immediately consult with Board staff on receipt of such a comment.

      Request for hearing or public meeting -- A request for a hearing or public meeting would not necessarily disqualify an otherwise qualifying proposal from consideration under the streamlined procedures or the normal 30 day procedures for delegated cases.  The Reserve Bank should immediately consult with the Board's Legal Division on receipt of a hearing or public meeting request to determine if a hearing or meeting should be held.  

  2. Protested Cases Eligible for Delegated Action

                            The Board has delegated authority to the Reserve Banks and the Secretary of the Board, as appropriate, to act on applications and notices that otherwise meet the delegation criteria and that involve certain types of comments.  A comment will not disqualify a case from action on delegated authority if the comment supports approval of the proposal or the comment raises solely matters described below.

    1. Qualifying Criteria

      1. Minority shareholder disputes that are unrelated to a statutory factor required to be considered.

          Applications and notices involving comments contesting the "fairness" of the transaction to minority shareholders in terms of stock pricing, exchange ratios, other matters that affect the value of the transaction to minority shareholders, or dilution of minority shareholder influence, may be processed under delegated authority.  However, a proposal with comments by minority shareholders that relate to the competence of management or that allege acts of improper conduct by management, violations of applicable laws or regulations, or adverse financial effects on the institution, would generally require Board action.

      2. Complaints based on an individual customer transaction, such as a complaint relating to an individual loan denial or a loan foreclosure proceeding, involving a financial institution that received a "satisfactory" or "outstanding" rating at its most recent CRA performance examination and one of the two highest ratings at its most recent compliance examination.

          Applications and notices involving customer complaints against an institution that are based on an individual transaction between the commenter and the institution may be processed under delegated authority if the institution was rated satisfactory or better at its most recent CRA performance examination and received one of the two highest ratings at its most recent compliance examination.  These types of comments should be referred to the appropriate department of the Reserve Bank for investigation if the institution is supervised by the System, or to the AFBA.  If the comment provides supporting facts, or the System has information available, that indicate that the alleged conduct could involve a pattern or practice of violating fair lending laws or relate to the institution's CRA performance, the proposal would generally require Board action.

      3. Specific issues that have been considered by the Board regarding the relevant institutions within the preceding year.

          Applications or notices involving comments that are substantially identical to, or that incorporate by reference, prior comments that have been considered by the Board within the preceding year may be processed under delegated authority if no new issue is raised by the commenter and no new information or development is presented that is related to the matters raised by the commenter.  Developments that may require review could include, for example, a performance examination downgrade or a review of the institution's practices, particularly practices related to fair lending law compliance, by the System or the AFBA that indicates a weakening in the institution's performance.  An application or notice involving comments from a previous commenter that present new facts regarding the applicant institution material to the statutory factors and not previously considered by the Board would be processed for Board action.  For example, new information could include revised or updated data, a study supporting the allegations completed since the last comment, or information about different geographic areas or banking markets.

          In applying the criteria, special attention must be paid to the details of the comment rather than the general category of the allegations raised. For example, a comment that raises specific concerns about the managerial or CRA records of an applicant would not be considered duplicative of a previous comment regarding the same applicant that was also based on managerial or CRA grounds unless substantially the same specific information and comments were made in the previous case.  The fact that both comments are broadly classified as related to managerial resources or CRA factors would not be sufficient to permit delegated action.

          Comments that would fall within this category but for the fact that they were previously considered by the Board outside the one year period may, however, be eligible for delegation under paragraph 5(iii) below.  In these situations, the Reserve Bank should consult with Board staff to determine if delegated action is appropriate.

      4. Unadjudicated disputes that arise under a statute administered and enforced by another agency in areas, such as employment discrimination, that the Board has decided are beyond its jurisdiction under the relevant statutory factors.

          The Board has determined that its limited jurisdiction to review applications and notices under the specific statutory factors in the BHC Act does not authorize the Board to adjudicate disputes between a commenter and an applicant that arise under a statute, other than a banking statute, administered and enforced by a federal or state agency (other than a federal or state banking agency) or the courts.  In particular, the Board has determined that disputes that arise in the areas of employment discrimination, securities law, unfair trade practices (similar name disputes), and state laws on corporate governance would be within the category of comments that are beyond the Board's jurisdiction to resolve and would meet this delegation criterion.  This is not an exhaustive list of areas that fall within this category, and the Reserve Banks should consult with the Board's Legal Division if it appears that comments address disputes in other areas that may be beyond the Board's jurisdiction to consider.  The Reserve Bank should forward copies of comments that fall under this category to the appropriate federal or state agency.

          Comments that relate to an administrative or court finding of a violation of a law or regulation or allegations involving banking laws and regulations, however, would not fall within this category and therefore would not be eligible for delegated action.  Violations of any statute or regulation (including employment discrimination statutes and other laws noted above) that have been determined by a court or by the agency with appropriate jurisdiction may be relevant to an analysis of the managerial resources of a bank holding company, and a proposal protested on these grounds would be processed for Board action.

      5. With the concurrence of Board staff, an application or notice involving any one of the following matters may be approved under delegated authority:

          (i)  Alleged violations of law or applicable regulations without any supporting evidence.

          The comment must not provide any facts supporting the matters raised, as distinguished from a comment that is unpersuasive because it is not supported by the weight of all the evidence.

          (ii)  Allegations that do not relate to a statutory factor (CRA, financial, managerial, competitive, supervisory or other statutory factors).

          This would include allegations relating to the motivation for an acquisition that is otherwise consistent with applicable statutory considerations and statements regarding potential public confusion about similarly named organizations.

          (iii)  Matters that do not otherwise warrant action by the Board.

          Consistent with the other delegation criteria, this "catch-all" criterion has limited applicability, and Board staff anticipates that it would be used only in extraordinary circumstances and on a case-by-case basis.  To obtain Board staff's concurrence, please fax the protest and the analysis that supports the Reserve Bank's conclusion that the matter is covered under this criterion to Board staff (in particular, the Board's Legal Division), and Board staff from the appropriate Divisions will determine if delegated action is appropriate.

    2. Procedures

        Analysis -- For cases that are determined to be eligible for delegated action, the Reserve Bank is expected carefully to consider and analyze the comment and include in the Reserve Bank staff memorandum a brief analysis as to the reasons the record of the applicant, analyzed in light of the protest, meets the statutory factors for approval, and demonstrating that the issues raised by the protest fall within one of the categories for delegation.   The Reserve Bank may seek additional information necessary to evaluate any comment eligible for delegated action.

        Response to commenter -- At the time action is taken on the proposal, the Reserve Bank should provide the commenter with a letter explaining the basis for concluding how, after considering the matters raised by the comments, the proposal meets the statutory factors required to be considered by the Reserve Bank.  Responses to commenters must include a statement that the commenter may request the Board to review the action taken by the Reserve Bank by submitting the request to the Secretary of the Board not later than the fifth business date after the date of the Reserve Bank's action.  The Reserve Banks are encouraged to consult with the Board's Legal Division on the preparation of the response and to provide a draft response for review when the Reserve Bank is applying a criterion for the first time.  The Reserve Bank should also refer a comment for investigation to the AFBA or other relevant agency, if appropriate.  Finally, the Reserve Bank should notify the commenter by telephone on the day an approval letter is signed of the action taken by the Reserve Bank and of the commenter's right to request the Board to review the action.

                        Please direct any questions regarding this letter or the comment procedures in general to Deborah M. Awai, Senior Attorney (202/452-3594), or Pamela G. Nardolilli, Senior Attorney (202/452-3289), of the Legal Division.

Richard Spillenkothen

Cross Reference: Regulation Y (12 CFR 225.16, 225. 24, 225.43)

Rules Regarding Delegation of Authority (12 CFR 265.11)

Rules of Procedure (12 CFR 262.3)

Manual on Procedures for Processing Applications and Notifications for Bank Holding Companies and State Member Banks


1.  62 Federal Register 9290 (February 28, 1997).  Return to text

SR letters | 1997