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6.10 Nationwide Liability Concentration Limit for Acquisitions

<< Title VI Overview

6.10 Nationwide Liability Concentration Limit for Acquisitions

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6.10.     Nationwide Liability Concentration Limit for Acquisitions.  Subject to the recommendations of the Oversight Council, a "financial company" is prohibited from merging or, consolidating with, or otherwise acquiring control of another company if the total consolidated liabilities upon the consummation of the transaction would represent more than 10 percent of the aggregate consolidated liabilities of all financial companies as of the end of the previous calendar year. [§ 622].  A financial company is (i) an insured depository institution; (ii) a BHC; (iii) a SLHC; (iv) any company that controls an insured depository institution: (v) a Significant Nonbank; and (vi) a foreign bank or company that is treated as a BHC.   

For purposes of defining "liabilities," the Act distinguishes between U.S. financial companies and foreign financial companies.  In the case of a U.S. financial company, liabilities equal (i) the total risk-weighted assets of the financial company, as determined under risk-based capital rules applicable to BHCs, adjusted to reflect exposures that are deducted from regulatory capital, less (ii) the total regulatory capital of the financial company under the risk-based capital rules applicable to BHCs.  In the case of a foreign financial company, both components of the liability calculation are based on the U.S. operations of the company.  The Act further provides that with respect to an insurance company or a Significant Nonbank, the Fed by rule will determine the assets of a company to provide for consistent and equitable treatment of such companies.

6.10.1.   Exception to Concentration Limit.  With the prior written consent of the Fed, the concentration limits will not apply to banks in default or in danger of default, acquisitions in which the FDIC is providing assistance, or that would only result in a de minimis increase in the liabilities of the acquiring company.

6.10.2.    Oversight Council Study and Fed Regulations.  Within six months of the passage of the Act, the Oversight Council is required to study the extent to which the concentration limit would affect financial stability, moral hazard in the financial system, the efficiency and competitiveness of U.S. firms, and the cost and availability of credit to consumers and businesses.  The Oversight Council is directed to make recommendations regarding any modifications to the concentration limits that would more effectively implement the concentration limit of the Act.  

The Fed must issue final rules implementing this provision which are to reflect recommendations from the Oversight Council within 9 months after the Council's study is complete.  The Fed also may issue guidance to individual institutions or financial companies in general.