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January 28, 1999

Andrew M. Hodgkin, Esq.
Brown, Rudnick, Freed & Gesmer
One Providence Washington Plaza
Providence, Rhode Island 02903

Dear Mr. Hodgkin:

This will respond to your recent letter requesting, on behalf of [Company], a determination that [Company] would not lose certain grandfather rights that it maintains under the Bank Holding Company Act ("BHC Act") as a result of an impending restructuring. [Company] owns all of the shares of [Bank], an institution that became a bank upon the enactment of the Competitive Equality Banking Act of 1987. [Company] may retain its ownership of Bank and not be treated as a bank holding company if [Company] and Bank observe certain limitations.

You stated that [Company] currently owns the shares of Bank indirectly through two intermediate holding companies, [Enterprises]. [Company] is selling the lines of business of [Enterprises], but wishes to retain Bank. You explained that [Company] may or may not retain [Enterprises] as shell holding companies for Bank.1

After selling the business lines of [Enterprises], [Company] proposes to move Bank to Rhode Island. To accomplish the move to Rhode Island, [Company] proposes to charter an interim national bank in Rhode Island that you maintain would qualify for the credit card bank exception from the definition of bank in the BHC Act.2    This interim bank would then be merged into Bank with the surviving entity retaining the charter of Bank and operating under the exemption to the BHC Act reserved for nonbank banks. Bank would then elect to maintain its home office in Rhode Island and to retain the name of the interim bank. [Company] also proposes to transfer the shares of Bank to [Financial Corporation], a wholly owned subsidiary of [Company].

The BHC Act would not prevent [Company] from chartering the interim bank. While the BHC Act prevents a grandfathered nonbank bank holding company such as [Company] from acquiring control of an additional bank or thrift,3   the interim bank, as a credit card bank, would not be a bank for purposes of the Act. In addition, the Act would not appear to prevent [Company] from merging the interim bank into Bank, moving the headquarters of Bank, or changing the name of Bank.

You have asked whether the transfer of the shares of Bank to [Financial Corporation] would raise an issue under the BHC Act because [Financial Corporation] is an intermediate holding company that did not control Bank on March 5, 1987.4   To address this issue, [Financial Corporation] has recognized that [Financial Corporation] would not have any grandfather rights under the BHC Act to own shares of Bank in the event [Financial Corporation] is no longer controlled by [Company].

Under these circumstances, the Legal Division would not recommend that the Board take any enforcement action against [Financial Corporation] if [Financial Corporation] acquires the shares of Bank while [Financial Corporation] remains a wholly owned subsidiary of [Company]. In the future should [Financial Corporation] no longer be controlled by [Company], [Financial Corporation] would be required immediately to divest its interest in Bank or seek Board approval under the BHC Act to become a bank holding company. In addition, [Company] and Bank must continue to abide by the limitations in the BHC Act on grandfathered companies and their subsidiary banks.

This response is based on facts presented by you. Any material change in the facts presented may result in a different conclusion and should be reported to Board staff. Should you have any questions about this matter please contact Thomas Corsi of the Board's Legal Division at (202) 452-3275.

Sincerely yours,

(Signed) Scott G. Alvarez

Scott G. Alvarez

Associate General Counsel


1. The dissolution of [Enterprises] would appear not to raise issues under the BHC Act. Return to text

2. 12 U.S.C. � 1841(c)(2)(F).Return to text

3. 12 U.S.C. � 1843(f)(2)(A).Return to text

4. The legislative history of CEBA states that grandfather rights may not be transferred to another organization, and will terminate if another company acquires, directly or indirectly, the bank involved. H.R. Conf. Rep. No. 100-261, at 125 (1987). Return to text

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