Fed delays effective date of bank control rule due to coronavirus

WASHINGTON — The Federal Reserve is postponing the effective date of a rule dealing with regulatory requirements for investors who own less than a quarter of a bank.

The central bank said Tuesday it will delay implementation by six months, to Sept. 30, of a January rule clarifying standards under the Fed's bank control framework. The extension is meant to allow banks to focus on effects of the coronavirus pandemic.

The rule, first proposed in April 2019, sought to standardize how those owning less than a quarter of a bank can determine if they hold a "controlling" stake, and therefore must register as a bank holding company.

The framework was originally supposed to go into effect April 1, but the Fed said it was pushing back the deadline in order to limit operational burden.

Bloomberg News

“The Board recognizes that, as a result of COVID-19, there have been recent dislocations in the U.S. economy,” the Fed said. “Many companies, including regulated financial institutions, have also expressed a desire to consult with Board staff about the effect of the new control rule on various existing investments and relationships.”

The extended time frame “should provide companies affected by the new control rule additional time to analyze the impact of the rule on existing investments and relationships,” the agency said.

The final rule is broadly the same as the proposal that the agency issued last year. That proposal established four tiers based on the amount of an investor's voting shares. The four tiers are: less than 5%, 5-9.99%, 10-14.99% and 15-24.99%.

In each tier, control would be presumed under a different set of conditions, such as the size of a company’s total equity investment and the makeup of the board.