Magazine article American Banker

FDIC and OTS Protest Fed's Plan for Curbs on Bank Subsidiaries

Magazine article American Banker

FDIC and OTS Protest Fed's Plan for Curbs on Bank Subsidiaries

Article excerpt

A Federal Reserve Board proposal to subject bank subsidiaries to new capital restrictions has come under attack by other regulators, who charge it is ill-conceived and infringes upon their turf.

Federal Deposit Insurance Corp. General Counsel William Kroener called the plan "a serious extension" of the Fed's authority.

"We believe that Congress has delegated supervision of classes of depository institutions to each of the federal banking regulators and that oversight of these institutions and their subsidiaries should be left to their primary federal regulator," he wrote in a letter to the Fed this week.

The Office of Thrift Supervision sent the Fed a similar letter.

The Fed shared a copy of its capital proposal with the agencies last week; it will release the plan to the public today during an open meeting. The proposal would apply sections 23a and 23b of the Federal Reserve Act to any bank subsidiary engaged in activities that the bank itself may not undertake. This would include securities underwriting and real estate development.

Section 23a restricts investments in subsidiaries to 20% of the parent company's capital, with no single subsidiary receiving more than 10% of capital. Section 23b requires that all deals be conducted at arm's length, which means the parent cannot provide discounted loans or other perquisites to its subsidiaries.

The proposal appears to be a response to the Office of the Comptroller of the Currency's operating-subsidiary rule, which permits banks to conduct activities in subsidiaries that they may not do directly. …

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