Section 20 Subsidiaries of Bank Holding Companies
September 4, 1997
Circular No. 10979

Modifications to Firewalls, Effective October 27, 1997

To All Bank Holding Companies and Others Concerned in the Second Federal Reserve District:

The following is from a statement by the Board of Governors of the Federal Reserve System:

The Federal Reserve Board has announced modifications to the prudential limits or firewalls that currently apply to bank holding companies engaged in securities underwriting and dealing activities through section 20 subsidiaries.

The modifications are effective October 27, 1997.

The Board is eliminating those restrictions that have proven to be unduly burdensome or unnecessary in light of other laws or regulations, and consolidating the remaining restrictions in a series of eight operating standards.

The new operating standards will cover the following areas:

  • Capital requirement for bank holding company and section 20 subsidiary;
  • Internal controls;
  • Interlocks restriction;
  • Customer disclosure;
  • Credit for clearing purposes;
  • Funding of securities purchases from a section 20 affiliate;
  • Reporting requirement;
  • and Application of sections 23A and 23B to foreign banks.

The Board has concluded that the narrower set of restrictions will be fully consistent with safety and soundness and should improve operating efficiencies at section 20 subsidiaries and increase options for their customers.

Enclosed is a copy of the amendments to Regulation Y that contain the modifications, as published in the Federal Register of August 27 is available as a file (pdf - 105kb). The modifications were originally proposed in our Circular No. 10921, dated February 5, 1997. Questions on this matter may be directed to Jim Keogh, Supervising Examiner of this Bank's Advisory and Technical Services Department.