Register

(7) “Well capitalized" has the meaning set forth in 12 USC 1831o(b)(1)(A).

DFI—Bkg 4.02 CONTROL AND INTEREST. Subject to s. DFI—Bkg 4.03 and s. DFI—Bkg 4.04, a financial institution may control a financial subsidiary or hold an interest in a financial subsidiary to engage in financial activities.

DFI—Bkg 4.03 APPLICATION. A financial institution desiring to control or hold an interest in a financial subsidiary shall apply to the division on forms prescribed by the division and shall pay the fee prescribed by the division. An application submitted to the division shall either be approved or disapproved by the division in writing within 30 days after its submission to the division. The division and the financial institution may mutually agree to extend the application period for an additional period of 30 days.

DFI—Bkg 4.04 CONDITIONS AND REQUIREMENTS. (1) A financial institution may control a financial subsidiary or hold an interest in a financial subsidiary to engage in financial activities only if the financial subsidiary engages in financial activities or activities in which the financial institution is permitted to engage under other applicable law. The financial subsidiary may also engage in any other activity approved by rule of the division. However, the financial subsidiary may not engage in any activity as a principal that is not permissible for a financial subsidiary of a national bank as a principal unless the activity is authorized by the Federal Deposit Insurance Corporation pursuant to 12 USC 1831a.

(2) The financial institution must receive the prior approval of the division to control or hold an interest in a financial subsidiary.

(3) The financial institution and each insured depository institution affiliate of the financial institution must be well capitalized (after the capital deduction required under s. DFI—Bkg 4.05)).

(4) The financial institution must meet any requirements of 12 USC 1831w applicable to the financial institution.

(5) The division may establish additional limits or requirements on financial institutions and financial subsidiaries if the division determines that the limits or requirements are necessary for the protection of depositors, members, investors or the public.

(6) For any period during which a financial institution fails to meet these requirements, the division may by order limit or restrict the activities of the financial subsidiary or require the divestiture of the financial institution's interest in the financial subsidiary.

DFI—Bkg 4.05 CAPITAL DEDUCTION. The aggregate amount of the outstanding equity investment, including retained earnings, of a financial institution in all financial subsidiaries controlled by the financial institution shall be deducted from the assets and tangible equity of the financial institution as determined by the division, and the assets and liabilities of the financial subsidiaries shall not be consolidated with those of the financial institution.

DFI—Bkg 4.06 DISCLOSURE. Any published financial statement of a financial institution that controls a financial subsidiary shall separately present financial information for the financial institution in the manner proved in s. DFI—Bkg 4.05.

DFI—Bkg 4.07 SAFEGUARDS FOR THE FINANCIAL INSTITUTION. A financial institution that establishes or maintains a financial subsidiary shall ensure the following:

(1) The procedures of the financial institution for identifying and managing financial and operational risk within the financial institution and the financial subsidiary adequately protect the financial institution from such risk;

(2) The financial institution has, for the protection of the financial institution, reasonable policies and procedures to preserve the separate corporate identity and limited liability of the financial institution and the financial subsidiaries of the financial institution; and

(3) The financial institution is in compliance with this requirement.

DFI—Bkg 4.08 AFFILIATE REQUIREMENTS. The financial institution must comply with the requirements of 12 USC 371c.

DFI—Bkg 4.09 PRESERVATION OF EXISTING SUBSIDIARIES. Notwithstanding this chapter, a financial institution may retain control of a subsidiary or retain an interest in a subsidiary that the financial institution lawfully controlled or acquired before the effective date of this chapter, and conduct through such subsidiary any activities lawfully conducted in such subsidiary as of such date. Furthermore, no provision of this chapter shall be construed as superseding the authority for financial institutions to conduct operations through subsidiaries under s. DFI—Bkg 3.04.

DFI—Bkg 4.10 EXAMINATION AND SUPERVISION. Each financial subsidiary shall be subject to examination and supervision by the division in the same manner and to the extent as the financial institution.

DFI—Bkg 4.11 REPORT OF DISPOSITION OF FINANCIAL SUBSIDIARY. Prior to disposition of a financial subsidiary, the financial institution shall inform the division by letter of the terms of the transaction.

Reference to Statutory Authority and Analysis Prepared by Department of Financial Institutions, Division of Banking

Analysis: To create ch. DFI—Bkg 4. Statutory authority: Ss. 220.02(2), 221.0322(2) and 227.11(2). The proposed rule would allow state-chartered banks to control or hold an interest in financial subsidiaries that would engage in activities that are financial in nature or incidental to a financial activity. The objective of the rule is to ensure that state-chartered banks will not be at a competitive disadvantage to other financial institutions that have received similar authority under the Gramm-Leach-Bliley Act of 1999 (“Act"). National banks are permitted under the Act to control or hold an interest in financial subsidiaries to engage in certain activities that are financial in nature or incidental to a financial activity. These financial activities are broader than "the business of banking or incidental to the business of banking activities" currently permitted for subsidiaries of state-chartered banks under s. DFI-Bkg. 3.04. Furthermore, state-chartered banks are permitted by s. 221.0322(1)., Stats., to undertake any activity, exercise any power, or offer any financially-related product or service in the state that any other provider of financial products or services may undertake, exercise or provide, or that the division finds to be financially related. Lastly, the proposed rule is consistent with Section 121(d) of the Act which permits insured state banks to control or hold an interest in a financial subsidiary subject to safety and soundness firewalls. The proposed rule would be the implementing provision under state law which may be necessary for state-chartered banks to exercise this new authority. Under the proposed rule, a financial institution may apply to the division to control or hold an interest in a financial subsidiary to engage in financial activities. The financial institution must meet certain conditions and requirements, and additional provisions regarding capital deduction, disclosure, safeguarding policy and procedures, and affiliate requirements apply. The division shall examine and supervise each financial subsidiary. Prior to disposition of a financial subsidiary, the financial institution shall inform the division. Agency person to be contacted for substantive questions and responsible for agency's internal process: Michael J. Mach, Administrator, Division of Banking, tel. [phone].

Fiscal Estimate

The fiscal effect on the state may be to increase existing revenues. Any increase in costs may be possible to absorb within the agency's budget. There is no local government cost. The fund source affected is program. The proposed rule provides that a financial institution desiring to control or hold an interest in a financial subsidiary shall apply to the division on forms prescribed by the division and shall pay the fee prescribed by the division. For similar types of applications, such as branch applications, the division has established a fee of $500. Current staff will review the applications. There are 267 state-chartered banks. It is estimated that approximately 125 state-chartered banks may establish financial subsidiaries over the next five years, or that the division will receive 25 application s a year for each of the next five years. Fiscal effect for the first year is $12,500. A copy of the full fiscal estimate may be obtained from the division at no charge by contacting Michael J. Mach, Administrator, Department of Financial Institutions, Division of Banking, P.O. Box 7876, Madison, WI 53707-7876, tel. [phone].

Initial Regulatory Flexibility Analysis

The proposed rule will not have an effect on small businesses.

Notice of Hearing

Financial Institutions

(Division of Savings Banks)

[CR 00-45]

Pursuant to s. 227.17, Stats, notice is hereby given that the Department of Financial Institutions, Division of Savings Institutions will hold a public hearing at the time and place indicated below to consider the creation of ch. DFI-SB 19, regarding financial subsidiaries.

Hearing Information

March 27, 2000   Tommy G. Thompson

Monday   Conference Room

9:00 a.m.   5th Floor

  Dept. of Financial Institutions

  345 W. Washington Ave.

  Madison, WI 53703

This facility is accessible to individuals with disabilities through levels A, B or the first floor lobby. If you require reasonable accommodation to access any meeting, please call Lisa Bauer at [phone] or TDY [phone] for the hearing impaired at least 10 days prior to the hearing date. Reasonable accommodation includes materials prepared in an alternative format, as provided by the Americans with Disabilities Act.

Text of the Proposed Rule

SECTION 1. CHAPTER DFI—SB 19 is created to read:

Chapter DFI—SB 19

FINANCIAL SUBSIDIARIES

DFI—SB 19.01 DEFINITIONS. In this chapter:

(1) “Affiliate," “company," “control," and “subsidiary" have the meanings set forth in s. 221.0901, Stats.

(2) “Division" means the division of savings institutions.

(3) “Financial activity" means any activity defined to be financial in nature or incidental to a financial activity for bank holding companies pursuant to 12 USC 1843(k)(4), and any activity determined by the Secretary of the Treasury to be financial in nature or incidental to a financial activity for financial subsidiaries of national banks in accordance with 12 USC 24a(b)(1)(B).

(4) “Financial institution" means a state savings bank chartered under ch. 214, Stats.

(5) “Financial subsidiary" means any company that is controlled by one or more insured depository institution other than a subsidiary that a financial institution is authorized to control under other applicable law, or a subsidiary that engages solely in activities that a financial institution is permitted to engage in directly and are conducted subject to the same terms and conditions that govern the conduct of such activities by the financial institution.

(6) “Insured depository institution" has the meaning set forth in 12 USC 1813(c)(2).

(7) “Well capitalized" has the meaning set forth in 12 USC 1831o(b)(1)(A).

DFI—SB 19.02 CONTROL AND INTEREST. Subject to s. DFI—SB 19.03 and s. DFI—SB 19.04, a financial institution may control a financial subsidiary or hold an interest in a financial subsidiary to engage in financial activities.

DFI—SB 19.03 APPLICATION. A financial institution desiring to control or hold an interest in a financial subsidiary shall apply to the division on forms prescribed by the division and shall pay the fee prescribed by the division. An application submitted to the division shall either be approved or disapproved by the division in writing within 30 days after its submission to the division. The division and the financial institution may mutually agree to extend the application period for an additional period of 30 days.

DFI—SB 19.04 CONDITIONS AND REQUIREMENTS. (1) A financial institution may control a financial subsidiary or hold an interest in a financial subsidiary to engage in financial activities only if the financial subsidiary engages in financial activities or activities in which the financial institution is permitted to engage under other applicable law. The financial subsidiary may also engage in any other activity approved by rule of the division. However, the financial subsidiary may not engage in any activity as a principal that is not permissible for a financial subsidiary of a national bank as a principal unless the activity is authorized by the Federal Deposit Insurance Corporation pursuant to 12 USC 1831a.

(2) The financial institution must receive the prior approval of the division to control or hold an interest in a financial subsidiary.

(3) The financial institution and each insured depository institution affiliate of the financial institution must be well capitalized (after the capital deduction required under ch. DFI—SB 19.05)).

(4) The financial institution must meet any requirements of 12 USC 1831w applicable to the financial institution.

(5) The division may establish additional limits or requirements on financial institutions and financial subsidiaries if the division determines that the limits or requirements are necessary for the protection of depositors, members, investors or the public.

(6) For any period during which a financial institution fails to meet these requirements, the division may by order limit or restrict the activities of the financial subsidiary or require the divestiture of the financial institution's interest in the financial subsidiary.

DFI—SB 19.05 CAPITAL DEDUCTION. The aggregate amount of the outstanding equity investment, including retained earnings, of a financial institution in all financial subsidiaries controlled by the financial institution shall be deducted from the assets and tangible equity of the financial institution as determined by the division, and the assets and liabilities of the financial subsidiaries shall not be consolidated with those of the financial institution.

DFI—SB 19.06 DISCLOSURE. Any published financial statement of a financial institution that controls a financial subsidiary shall separately present financial information for the financial institution in the manner proved in s. DFI—SB 19.05.

DFI—SB 19.07 SAFEGUARDS FOR THE FINANCIAL INSTITUTION. A financial institution that establishes or maintains a financial subsidiary shall ensure the following:

(1) The procedures of the financial institution for identifying and managing financial and operational risk within the financial institution and the financial subsidiary adequately protect the financial institution from such risk;

(2) The financial institution has, for the protection of the financial institution, reasonable policies and procedures to preserve the separate corporate identity and limited liability of the financial institution and the financial subsidiaries of the financial institution; and

(3) The financial institution is in compliance with this requirement.

DFI—SB 19.08 AFFILIATE REQUIREMENTS. The financial institution must comply with the requirements of 12 USC 371c.

DFI—SB 19.09 PRESERVATION OF EXISTING SUBSIDIARIES. Notwithstanding this chapter, a financial institution may retain control of a subsidiary or retain an interest in a subsidiary that the financial institution lawfully controlled or acquired before the effective date of this chapter, and conduct through such subsidiary any activities lawfully conducted in such subsidiary as of such date. Furthermore, no provision of this chapter shall be construed as superseding the authority for financial institutions to conduct operations through subsidiaries under ch. DFI—SB 15.

DFI—SB 19.10 EXAMINATION AND SUPERVISION. Each financial subsidiary shall be subject to examination and supervision by the division in the same manner and to the extent as the financial institution.

DFI—SB 19.11 REPORT OF DISPOSITION OF FINANCIAL SUBSIDIARY. Prior to disposition of a financial subsidiary, the financial institution shall inform the division by letter of the terms of the transaction.

Reference to Statutory Authority and Analysis Prepared by Department of Financial Institutions, Division of Banking

Analysis: To create ch. DFI—SB 19. Statutory authority: Ss. 214.715(1), 214.03(1) and (2), and 227.11(2), Stats. The proposed rule would allow state-chartered savings banks to control or hold an interest in financial subsidiaries that would engage in activities that are financial in nature or incidental to a financial activity. The objective of the rule is to ensure that state-chartered savings banks will not be at a competitive disadvantage to other financial institutions that have received similar authority under the Gramm-Leach-Bliley Act of 1999 (“Act"). National banks are permitted under the Act to control or hold an interest in financial subsidiaries to engage in certain activities that are financial in nature or incidental to a financial activity. These financial activities are broader than the parity provisions of s. 214.03(1) and (2), Stats., and the subsidiary provisions of s. 214.49, Stats. and DFI—SB 15. Lastly, the proposed rule is consistent with Section 121(d) of the Act which permits insured state savings banks to control or hold an interest in a financial subsidiary subject to safety and soundness firewalls. The proposed rule would be the implementing provision under state law which may be necessary for state-chartered savings banks to exercise this new authority. Under the proposed rule, a financial institution may apply to the division to control or hold an interest in a financial subsidiary to engage in financial activities. The financial institution must meet certain conditions and requirements, and additional provisions regarding capital deduction, disclosure, safeguarding policy and procedures, and affiliate requirements apply. The division shall examine and supervise each financial subsidiary. Prior to disposition of a financial subsidiary, the financial institution shall inform the division. Agency person to be contacted for substantive questions and responsible for agency's internal process: John A. Gervasi, Administrator, Division of Savings Institutions, tel. [phone].

Fiscal Estimate

The fiscal effect on the state may be to increase existing revenues. Any increase in costs may be possible to absorb within the agency's budget. There is no local government cost. The fund source affected is program. The proposed rule provides that a financial institutions desiring to control or hold an interest in a financial subsidiary shall apply to the division on forms prescribed by the division and shall pay the fee prescribed by the division. For similar types of applications, such as branch applications, the division has established a fee of $500. Current staff will review the applications. There are 21 state-chartered savings banks. If all state-chartered savings banks establish a financial subsidiary, the fiscal effect would be $10,500. A copy of the full fiscal estimate may be obtained from the division at no charge by contacting John A. Gervasi, Administrator, Department of Financial Institutions, Division of Savings Institutions, P.O. Box 8306, Madison, WI 53708-8306, tel. [phone].

Initial Regulatory Flexibility Analysis

The proposed rule will not have an effect on small businesses.

Notice of Hearing

Financial Institutions

(Division of Savings & Loans)

[CR 00-45]

Pursuant to s. 227.17, Stats, notice is hereby given that the Department of Financial Institutions, Division of Savings Institutions will hold a public hearing at the time and place indicated below to consider the creation of ch. DFI-SL 21, regarding financial subsidiaries.

Hearing Information

March 27, 2000   Tommy G. Thompson

Monday   Conference Room

9:00 a.m.   5th Floor