Final rule—amendment to Regulation Y - Legal Developments

Federal Reserve Bulletin, August, 2003

The Board of Governors of the Federal Reserve System (the Board) is amending 12 C.F.R. Part 225, its Regulation Y (Bank Holding Companies and Change in Bank Control). The amendment would permit bank holding companies to (i) take and make delivery of title to commodities underlying commodity derivative contracts on an instantaneous, pass-through basis; and (ii) enter into certain commodity derivative contracts that do not require cash settlement or specifically provide for assignment, termination, or offset prior to delivery.

Effective August 1, 2003, 12 C.ER. Part 225 is amended as follows:

Part 225--Bank Holding Companies and Change in Bank Control (Regulation Y)

1. The authority citation for Part 225 continues to read as follows:

Authority: 12 U.S.C. 1817(j)(13), 1818, 1828(o), 1831i, 1831p-1, 1843(c)(8), 1843(k), 1844(b), 1972(1), 3106, 3108, 3310, 3331-3351, 3907, and 3909.

2. Section 225.28 is amended by revising paragraph (b)(8)(ii)(B) to read as follows:

Section 225.28--List of permissible nonbanking activities

(b) ***

(8) ***

(ii) ***

(B) Forward contracts, options, futures, options on futures, swaps, and similar contracts, whether traded on exchanges or not, based on any rate, price, financial asset (including gold, silver, platinum, palladium, copper, or any other metal approved by the Board), nonfinancial asset, or group of assets, other than a bank-ineligible security, (1) if:

(1) A state member bank is authorized to invest in the asset underlying the contract;

(2) The contract requires cash settlement;

(3) The contract allows for assignment, termination, or offset prior to delivery or expiration, and the company--

(i) makes every reasonable effort to avoid taking or making delivery of the asset underlying the contract; or

(ii) receives and instantaneously transfers title to the underlying asset, by operation of contract and without taking or making physical delivery of the asset; or

(4) The contract does not allow for assignment, termination, or offset prior to delivery or expiration and is based on an asset for which futures contracts or options on futures contracts have been approved for trading on a U.S. contract market by the Commodity Futures Trading Commission, and the company--

(i) makes every reasonable effort to avoid taking or making delivery of the asset underlying the contract;or

(ii) receives and instantaneously transfers title to the underlying asset, by operation of contract and without taking or making physical delivery of the asset.

(1) A bank-ineligible security is any security that a state member bank is not permitted to underwrite or deal in under 12 U.S.C. 24 and 335.