Effective April 27, 2001

By the Division of Banks


Over view

The regulations provide state-chartered banks with the new financial subsidiary powers accorded to national banks by the Gramm-Leach-Bliley Financial Services Modernization Act of 1999 ("GLBA").(Public Law 106-102,13 Stat.1338 (November 12, 1999).) They also clarify existing provisions governing minority or non-controlling investments currently authorized under 209 CMR 47.06(3)(c). Each of proposed changes to 209 CMR 47.00 are discussed in greater detail below.



209 CMR 47.06(3)(c) is hereby amended by striking out clause 1., and inserting in place thereof the following:-

1. General. A bank may hold minority or non-controlling investments , directly or indirectly through a subsidiary formed under M.G.L. c.167F, §2(7)-(8) or 209 CMR 47.06(3)(b), in entities other than those organized primarily to promote the public welfare or acquired by the bank, in good faith through foreclosure, by way of compromise of a doubtful claim or to avoid loss in connection with debt previously contracted subject to the requirements of 209 CMR 47.06(c)1. through 4.

Summary

209 CMR 47.06(3)(c) was originally derived from official interpretations by the Office of the Comptroller of the Currency (the "OCC"). These powers reflect interpretations of the incidental powers provision of the National Bank Act, 12 U S.C. 24(7)(National banks are authorized to make minority or non-controlling investments in any enterprise that engages in activities that are incidental to banking or that are convenient and useful to the applicant bank in carrying out its business.) made by the OCC through 1999. The OCC subsequently adopted regulations in May 2000 addressing minority or non-controlling investments by national banks.(See 12 CFR §5.36) The Division's proposed amendments to 209 CMR 47.06(3)(c)1., and 209 CMR 47.06(3)(c)4.k., reflect this latter action.

The proposed change to 209 CMR 47.06(3)(c)1., simply clarifies that a non-controlling or minority investment can be made directly by the bank or indirectly through a corporate subsidiary.(12 CFR §5.36(e).)

209 CMR 47.06(3)(c) is hereby further amended by striking out clause 4.k., and inserting in place thereof the following:-

k. Any other activity that meets the requirements of 209 CMR 47.06(c)1. through 3 or is otherwise authorized by 12 CFR 5.36(e).

Summary

This proposed amendment also reflects the OCC's May 2000 adoption of regulations governing minority or non-controlling investments. This change provides that 12 CFR 5.36(e) is an additional source of investment authorities for state-chartered banks under 209 CMR 47.06(3)(c)4.k. All additional minority or non-controlling investments must continue to meet the requirements of 209 CMR 47.06(3)(c)1. through 3.

209 CMR 47.06(3) is hereby amended by inserting the following new paragraph: -

(d) Financial subsidiaries.

1. Permissible Activities. A well capitalized bank may engage in the following authorized activities through a financial subsidiary:
a. Activities that are financial in nature and activities incidental to a financial activity, authorized pursuant to 12 U.S.C. 24a, including:
  1. Lending, exchanging, transferring, investing for others, or safeguarding money or securities;
  2. Providing financial, investment, or economic advisory services, including advising an investment company as defined in section 3 of the Investment Company Act (15 U.S.C. 80a-3);
  3. Issuing or selling instruments representing interests in pools of assets permissible for a bank to hold directly;
  4. Underwriting, dealing in, or making a market in securities;
  5. Engaging in any activity that the Board of Governors of the Federal Reserve System has determined, by order or regulation in effect on November 12, 1999, to be so closely related to banking or managing or controlling banks as to be a proper incident thereto (subject to the same terms and conditions contained in the order or regulation, unless the order or regulation is modified by the Board of Governors of the Federal Reserve System);
  6. Engaging, in the United States, in any activity that a bank holding company may engage in outside the United States and the Board of Governors of the Federal Reserve System has determined, under regulations prescribed or interpretations issued pursuant to section 4(c)(13) of the Bank Holding Company Act of 1956 (12 U.S.C. 1843(c)(13)) as in effect on November 11, 1999, to be usual in connection with the transaction of banking or other financial operations abroad;
  7. Activities that the Secretary of the Treasury in consultation with the Board of Governors of the Federal Reserve System, determines to be financial in nature or incidental to a financial activity; and
  8. Engaging in any other financial activities authorized by 12 CFR §5.39

b. Activities that are financial in nature and activities incidental to a financial activity directly or indirectly authorized under M.G.L.c.167 through M.G.L. c.167H.

2. Limitations. Activities that may be conducted by a subsidiary pursuant to 209 CMR 47.06(3)(d) shall strictly conform to the requirements of 209 CMR 47.05, provided, however, that the bank must maintain a satisfactory CRA rating at all times

Summary

This is an entirely new provision. It would extend to state-chartered banks the authority granted to national banks by Section 121 of GLBA to engage in "financial activities" through a financial subsidiary. (Codified as 12 U.S.C. 24a.) FDIC insured state-chartered banks are not prohibited from engaging in financial activities under federal law. The text of 209 CMR 47.06(3)(d) is directly modeled after the OCC's regulation governing financial subsidiaries.(See 12 CFR §5.39(e). ) It contains a similar listing of authorized financial activities as found in the OCC regulation.( 209 CMR 47.06(3(d)1.a.(i)-(vii). ) The Division, however, omitted the OCC provision authorizing nationwide insurance agency and brokerage activities. (12 CFR §5.39(e)(1)(ii).) Any bank engaging in financial subsidiary activities also will be required to maintain a "satisfactory" CRA performance rating at all times in addition to the financial, managerial and other eligibility prerequisites mandated by 209 CMR 47.05(1)-(4).(209 CMR 47.06(3)(d)2.) Moreover, FDIC insured institutions would also have to comply with all applicable capital, investment or other requirements of Section 121 of GLBA to the extent applicable under federal law and regulation.