Federal Reserve Supervision of Financial Holding Companies - Guidance Focusing on GLB Act's Provisions Governing Financial Activities
August 24, 2000
Circular No. 11266

To All Financial Holding Companies in the Second Federal Reserve District:

The Board of Governors of the Federal Reserve System has made the following announcement:

The Federal Reserve Board has issued guidance outlining the purpose and scope of its supervision of financial holding companies authorized to engage in a diversified range of financial activities.

The Federal Reserve is responsible for determining that financial holding companies, on a consolidated basis, are operated in a manner that does not threaten the viability of their depository institution subsidiaries. Through August 11, 365 banking organizations had elected to be treated as financial holding companies.

The guidance, contained in a letter to Federal Reserve supervisors as well as financial holding companies, focuses on the Gramm-Leach-Bliley Act's provisions for working with the functional regulators of the companies' securities, insurance and commodities subsidiaries. There should be minimal, if any, noticeable change in the well-established relationships between the Federal Reserve and the primary supervisors of depository institutions controlled by financial holding companies.

"Effective financial holding company supervision requires strong cooperative relationships between the Federal Reserve and primary bank, thrift and functional regulators and foreign supervisors," wrote Richard Spillenkothen, director of the Board's Division of Banking Supervision and Regulation. "These relationships respect the individual statutory authorities and responsibilities of the respective supervisors but at the same time allow for enhanced information flows and coordination so that individual responsibilities can be carried out effectively without creating duplication or excessive burden."

In supervising financial holding companies, the Federal Reserve will rely on reports filed with or prepared by bank, thrift and functional regulators as well as on publicly available information for both regulated and non-regulated subsidiaries. Where necessary and appropriate, the Federal Reserve may conduct or participate in reviews at banks, thrifts or functionally regulated subsidiaries to verify that risk management and internal control policies established at the holding company level are being effectively implemented.

Most of the concepts discussed in the framework are already applied by the Federal Reserve in the consolidated supervision of complex bank holding companies. The Federal Reserve's supervision of financial holding companies will evolve as their activities and structures become more diverse. It may differ depending on a financial holding company's mix of banking, securities and insurance activities.

Supervisory letters are the Federal Reserve's primary means of communicating key policy directives to its examiners, supervisory staff and the banking industry. Supervisory letters can be viewed on the Board's web site.

The supervisory letter is available. Questions on this matter may be directed, at this Bank, to Darryll E. Hendricks, Senior Vice President.