Understanding the Subsidiary Exception [Banks & Banking]: A Comprehensive Guide

Q: Who can establish a new bank under the subsidiary exception?

A bank holding company or an eligible depository institution can establish a new bank as a wholly owned subsidiary.

Q: What are the key requirements for the subsidiary exception?

The new institution must be wholly owned, and the parent company must meet specific rating and asset criteria.

Definition & Meaning

The subsidiary exception in banking refers to a regulatory provision that allows a new financial institution to be recognized as established if it meets certain criteria related to its ownership. Specifically, it applies to institutions that are wholly owned subsidiaries of either a bank holding company or an eligible depository institution. This exception is significant as it helps streamline the establishment process for new banks and savings associations under federal regulations.

Table of content

Legal Use & context

This term is primarily used in the context of banking and financial regulation. It is relevant for bank holding companies and savings associations looking to establish new subsidiaries. Understanding the subsidiary exception is crucial for compliance with federal regulations, particularly under the Bank Holding Company Act and the Home Owners' Loan Act. Users can utilize legal templates from US Legal Forms to navigate the establishment process effectively.

Key legal elements

The new institution must be a wholly owned subsidiary.
If owned by a bank holding company, it must have an eligible depository institution that has been chartered for at least five years.
The holding company must have a composite rating of at least "2" or an "A" rating.
At least 75 percent of the holding company's insured depository institution assets must be from eligible institutions.
If owned by an eligible depository institution, that institution must also have been chartered for at least five years.

Real-world examples

Here are a couple of examples of abatement:

Example 1: A bank holding company that has operated for over five years decides to establish a new bank as a wholly owned subsidiary. Since it meets the eligibility criteria, the new bank can be recognized as established under the subsidiary exception.

Example 2: A savings association that has been chartered for six years creates a new subsidiary bank. This new bank qualifies under the subsidiary exception because the parent institution meets all necessary requirements. (hypothetical example)

Relevant laws & statutes

The primary regulations governing the subsidiary exception are found in:

12 CFR 327.8 - Regulations of the Federal Deposit Insurance Corporation.
Bank Holding Company Act of 1956.
Home Owners' Loan Act.

Comparison with related terms

Term	Definition	Key Differences
Bank Holding Company	A company that controls one or more banks.	Focuses on ownership, while subsidiary exception pertains to the establishment of new institutions.
Eligible Depository Institution	A financial institution that meets specific regulatory criteria.	Refers to the type of institution that can establish subsidiaries under the exception.

Common misunderstandings

What to do if this term applies to you

If you are considering establishing a new bank or savings association, ensure that you understand the requirements of the subsidiary exception. You may want to consult legal templates from US Legal Forms to assist in the process. If your situation is complex, seeking professional legal advice is recommended.

Find the legal form that fits your case

Browse our library of 85,000+ state-specific legal templates.

This field is required

Quick facts

Typical Fees: Varies based on state and institution type.
Jurisdiction: Federal regulations apply, with state laws potentially influencing specific requirements.
Possible Penalties: Non-compliance with regulations can lead to fines or denial of establishment.

Key takeaways

Frequently asked questions

What is a subsidiary exception?

It is a regulatory provision that allows a new institution to be recognized as established if it meets certain ownership criteria.