Federal Reserve Proposes To Clarify Bank Control Rules

Investors that own large stakes in a bank can trigger the Federal Reserve's oversight if they have "controlling influence" over the bank. Rules for determining control, and thereby the subjection of the controlling party to extensive Federal Reserve supervision, were developed gradually, in the form of public and private interpretations, to help banks and their investors comply with regulatory requirements. The resulting schema, according to Federal Reserve Vice Chair for Supervision Randal Quarles, is both "Delphic"¹ and "hermetic."²  

Any lack of clarity in this area is problematic; it could unnecessarily hinder provision of capital to banks from investors fearful of being caught up in a regulatory web or lead to unintended compliance failures. The Department of the Treasury recommended that the Fed review its current approach for determining control, which the Department found "not sufficiently transparent." In particular, Treasury feared that opacity could