February 27, 2006
Approval of final rule expanding the definition of a small bank holding company
For immediate release
The Federal Reserve Board on Monday announced the approval of a final rule that expands the definition of a small bank holding company (BHC) under the Board's Small Bank Holding Company Policy Statement and the Board's risk-based and leverage capital guidelines for bank holding companies.
The policy statement facilitates the transfer of ownership of small community banks by permitting debt levels at small BHCs that are higher than what would typically be permitted for larger BHCs. Because small BHCs may, consistent with the policy statement, operate at a level of leverage that generally is inconsistent with the capital guidelines, the capital guidelines provide an exemption for small BHCs.
In its revisions to the Policy Statement, the Board has raised the small BHC asset size threshold from $150 million to $500 million and amended the related qualitative criteria for determining eligibility as a small BHC for the purposes of the policy statement and the capital guidelines. The amendments to the threshold and the qualitative criteria are designed to reflect changes in the industry since the initial issuance of the policy statement in 1980. The final rule is substantially similar to the proposed rule issued in September 2005 and takes effect 30 days after publication in the Federal Register.
The Board has also clarified the treatment of subordinated debt associated with issuances of trust preferred securities. The revised policy statement indicates that such subordinated debt is considered debt for most purposes under the policy statement, subject to a five-year transition period.
In the near term, the Board will be issuing a separate notice on related changes made to its regulatory financial reporting requirements. Under the revised regulatory financial reporting requirements, qualifying small BHCs will only be required to file parent-only financial data on a semi-annual basis (FR Y-9SP).
The Board's notice is attached. Publication in the Federal Register is expected shortly.