Seal of the Board of Governors of the Federal Reserve System

WASHINGTON, D. C.  20551


SR 96-39 (APP)
December 26, 1996


SUBJECT: Joint Venture Proposals Pursuant to Regulation Y:  Guidance Regarding Issues, and Criteria for Delegation

                        A joint venture is a legal entity engaged in the joint undertaking of a particular transaction by two or more persons for mutual profit.  Joint ventures may be organized in any form, including a simple operating agreement signed by several participants, or a more formal partnership or corporate form.  Joint ventures usually contain one or more of the following elements: (1) an agreement to carry on an enterprise; (2) a joint interest reflected in the contribution of property, finances, skill or knowledge of each party to the joint venture; (3) some measure of ownership or joint control of the enterprise; and (4) a provision for sharing profits and losses.  Not all of these elements must be present before an entity is considered a joint venture, and no single element (such as equity ownership or a sharing of profits and losses) is determinative of joint venture status.  However, the Reserve Banks should consult with Board staff where one or more of these elements are present and the proposed entity would not be treated as a joint venture.

                        The Manual on Procedures for Processing Applications and Notifications currently states that certain applications and notifications that present significant legal, competitive, financial, or policy issues should be processed at the Board.  Included among the types of applications and notifications that are processed for Board action are section 4 notifications that involve an initial joint venture.  The Manual provides that these notifications may be returned to the Reserve Banks for action, in certain cases, subsequent to review by Board staff.

                        Board staff believes that the System now has sufficient experience with processing joint venture notifications to conclude that certain proposals do not raise issues and should be accepted for processing under delegated authority, assuming all other delegated criteria are clearly satisfied.1 Reserve Banks, therefore, may process initial joint venture notifications involving activities clearly permissible pursuant to section 225.25(b) of Regulation Y filed by a bank holding company where (1) the bank holding company would have at least a 5 percent voting interest in the joint venture; (2) the joint venture is not structured as a partnership; and (3) no issues, including those described below, are present.2

                        Joint venture proposals meeting the above criteria will not require name checks on the principals of the co-venturer if the co-venturer is a domestic entity or domestic individual.  Where a proposal involves a foreign banking organization as either the notificant or co-venturer, or a foreign national as a co-venturer, Reserve Bank staff should consult with Board staff.

                        All joint ventures, including those meeting the above criteria for delegation, will continue to require two commitments (attached) from the bank holding companies filing the proposal.   Bank holding companies should submit these commitments with the notice.  Any changes to these two commitments should be discussed with Board staff.  

                        The Reserve Banks should continue to accept for Board action: (1) proposals that do not meet the foregoing criteria; and (2) all joint venture notifications in which the proposed joint venture would engage in securities or securities-related activities, including for example securities brokerage or advisory activities, or where the co-venturer or its affiliates engage in securities or securities-related activities, including for example selling, sponsoring, or administering mutual funds.3 These notices may require additional information or commitments.  

                        In identifying issues in joint venture proposals, particular attention should be paid to: (1) the potential effects on competition; (2) the potential for the joint venture to become engaged in impermissible nonbanking activities; (3) the allocation of profits and loss and financial exposure among the co-venturers; and (4) the bank holding company's proposed regulatory capital treatment.   For example, the Board has in a number of cases involving joint ventures between bank holding companies and car manufacturers expressed concern about the potential anti-competitive effects that would occur if the bank holding company or joint venture were to be the sole lender to customers of the car manufacturer.4 In other cases, the Board has carefully considered whether the sales practices of a joint venture arrangement between a bank holding company and a company or group of individuals engaged in impermissible nonbanking activities would permit the bank holding company to be perceived as engaged in impermissible nonbanking activities.5 Arrangements between a bank holding company and co-venturer calling for joint marketing plans or the use of dual employees raise such issues.  Moreover, joint venture proposals in which a bank holding company assumes financial risks/rewards disproportionate to its voting interest in the venture may raise control issues with respect to a co-venturer or supervisory issues with respect to the notificant.   Also, the Board has expressed concern when a bank holding company's treatment of its investment in the joint venture for purposes of determining regulatory capital requirements is inconsistent with, and does not capture risks arising from, the bank holding company's degree of control over or financial exposure to a venture company - an issue that is common in joint ventures where a bank holding company serves as a general partner, but which may arise in other situations, as well.  

                        If you have any questions concerning the changes in processing or questions with respect to specific joint venture proposals, please call Robert Frierson of the Legal Division (ext. 3711), or Melissa Clark (ext. 2277) or John Russell (ext. 2466) of this Division.  

Stephen C. Schemering
Deputy Director



  1. Notificant will not solicit business on behalf of Co-venturer or its affiliates (other than Company).  Notificant, Company, and Co-venturer or its affiliates do not currently have or expect to have any other significant relationships that would cause Notificant, its affiliates, or Company to be engaged in any of the activities of Co-venturer or its affiliates (other than Company).

  2. Company will be treated as an affiliate for purposes of section 23A and section 23B of the Federal Reserve Act and as a subsidiary of a bank holding company within the meaning of the Bank Holding Company Act (12 U.S.C. § 1841(d)).  


1.  Joint venture proposals that meet the criteria for delegation may qualify for the 12 business day prior notice procedures set forth in section 2208 of the Economic Growth and Regulatory Paperwork Reduction Act of 1996, so long as the qualifying criteria are clearly met for all notificants.  Return to text

2.  The Reserve Bank, after consultation with Board staff, also may act on a joint venture notice if the issue presented by the notice is an issue that has been previously resolved in favor of delegated action.  Return to text

3.  Affiliate means any company that controls, is controlled by, or is under common control with another company.  See 12 U.S.C. § 1841(k).  Return to text

4.  See e.g., Marine Midland Banks, Inc., 74 Federal Reserve Bulletin 137 (1987).  Return to text

5.  See Amsterdam-Rotterdam Bank N.V., 70 Federal Reserve Bulletin 835 (1984); First Interstate Bancorp, 70 Federal Reserve Bulletin 659 (1984).  Return to text

6.  In the commitments, substitute the name of the bank holding company for "Notificant;" the name of the joint venture company for "Company;" and the name of the co-venturer for "Co-venturer."  Return to text

SR letters | 1996