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6.18 Source of Strength Doctrine

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6.18 Source of Strength Doctrine

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6.18.     Source of Strength Doctrine.  The Act establishes a statutory mandate that the appropriate Federal banking agency require that a BHC or SLHC or other non-BHC or SLHC controlling an insured depository institution serve as a source of financial strength for the underlying bank or association.  This is in addition to provisions requiring a grandfathered SLHC or a Significant Nonbank to be a source of strength to an intermediate holding company.  The agencies are empowered to require the company serving as a source of strength to submit reports to the appropriate Federal banking agency regarding its financial health. [§ 616]    

6.18.1. "Source of Strength" Defined.  The Act defines "source of financial strength" to mean, "the ability of a company that directly or indirectly owns or controls an insured depository institution to provide financial assistance to such insured depository institution in the event of the financial distress of the insured depository institution."

The Federal banking agencies are directed to issue joint rules to carry out the source of strength doctrine not later than 1 year after the Transfer Date, and the source of strength doctrine itself will be effective 1 year after enactment of the Act.