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Federal Reserve Board Regulations
Source: Encyclopedia of Banking & Finance (9h Edition) by Charles
(We recommend this as work of authority.)
The federal government regulates
depository institutions that it charters, or which have obligations insured
by it, through five federal agencies.
These laws and regulations establish a framework for bank behavior
that fosters the maintenance of a safe and sound banking system and the
fair and efficient delivery of services to bank customers. The Board of Governors of the Federal Reserve System is empowered
to set regulations to ensure the smooth functioning of the central bank
and its relationships to financial institutions, commercial banks, bank
holding companies and consumer credit.
These regulations are the bylaws by which the Federal Reserve System
fulfills Congressional policies, defined in various banking legislation
since 1913, which have been assigned to the Federal Reserve System for
Regulations of the Board of
Governors of the Federal Reserve System are published in the Federal Register.
In addition, they may be obtained, individually with amendments,
from the Board. As of mid-year
1988, twenty-seven regulations were in effect.
Interpretations of the regulations are published by the board in
the Federal Reserve Bulletin and the Federal Register. Proposed regulations and amendments to existing regulations
are circulated in these publications for comment prior to final promulgation.
Summaries of the various regulations
follow. These regulations
can be and have been amended. To
obtain a copy of specific regulations, write to:
Publication Service, Board of Governors of the Federal Reserve
System, Washington, DC 20551.
Regulation A: Loans
to Depository Institutions.
Regulation A governs the
discount and borrowing privileges of depository institutions.
The Monetary Control Act of 1980 opened the discount facilities
of the Federal Reserve System to any depository institution that maintains
transactions accounts or nonpersonal time deposits.
The regulation provides for lending under two basic programs:
adjustment credit and extended credit.
credit is the primary type of Federal Reserve credit.
This type of credit is offered to help borrowers meet short-term
needs for funds when their usual sources are not reasonably available.
Borrowing to take advantage of a favorable spread between the
discount rate and other market rates is not permissible.
Interest on adjustment credit will generally be charged at the
basic discount rate. However,
the Federal Reserve retains the right to impose a surcharge in addition
to the basic rate. This
surcharge may apply to all, or only selected, borrowers at the Federal
is designed to assist depository institutions meet longer-term needs
for funds. This category
includes seasonal credit regularly given to smaller institutions that
lack ready access to national money markets.
Under the seasonal credit program, advances are usually made
at the basic discount rate, but as with adjustment credit, the Federal
Reserve maintains the option to impose a surcharge.
also includes assistance to individual depository institutions that
experience special difficulties arising from Exceptional circumstances
and assistance to address liquidity strains affecting a broad range
of depository institutions. Such
credits are given if the assistance is in the public interest and the
needed funds are not available from other sources.
Surcharges are not normally applied to extended credit of this
type and repayment schedules are usually more lenient than with seasonal
Although the discount
facilities of the Federal Reserve are not intended to supplant other
reasonably available sources of funds, in unusual circumstances, emergency
credit may be advanced to entities other than depository institutions
where failure to obtain credit would adversely affect the economy.
However such credit is only available after all other sources
have been tapped, including other federal agencies.
Regulaiton AA: Consumer
Regulation AA provides
for the investigation of alleged unfair or deceptive acts by state member
banks, or an alleged violation of law or regulations, given the proper
filing of a complaint. The
regulation also prohibits a bank from including or enforcing any of
the following provisions in a consumer credit obligation:
a confession of judgment clause; a waiver of exemption; a certain
type of wage assignment; and a nonpossessory, nonpurchase money security
interest in household goods. In
addition, the regulation prohibits pyramiding (a late charge practice)
and provides protection for consigners in consumer credit transactions.
by the Board of Governors or a Federal Reserve Bank regarding an act
or practice of an institution other than a state member bank will be
forwarded to the federal agency having jurisdiction over that institution.
Regulation B: Equal
Regulation B prohibits
discrimination in any credit transaction based on age, race, color,
religion, national origin, sex, marital status, or receipt of income
from public assistance programs. As
a general rule, creditors may not ask the aforementioned characteristics
of applicants, but exceptions apply in the case of residential mortgage
applications. In addition,
creditors may not discriminate from applicants who exercise their rights
under the federal consumer credit laws.
To facilitate compliance, model credit application forms are
provided in the regulation.
also requires creditors to give applicants a written notice of rejection
of an application, a statement of the applicant's rights under the Equal
Credit Opportunity Act, and a statement either of the reasons for the
rejection or the applicant's right to request the reasons.
Creditors who furnish credit information, when reporting information
on married borrowers, must report information in the names of each spouse.
To prevent discrimination,
the Board of Governors of the Federal Reserve characterized Regulation
B as imposing a delicate balance on the credit system, in recognition
of the bank's need to know as much as possible about a prospective borrower
and the borrower's right not to disclose information that is irrelevant
to the transaction. The
regulation deals with taking, evaluating, and acting on the application
and with furnishing and maintaining credit information.
Regulation B does not
(the Fed's emphasis) prevent a creditor from determining any pertinent
information necessary to evaluate the creditworthiness of an applicant.
Regulation BB requires
state-chartered banks that are members of the Federal Reserve System
to adopt a Community Reinvestment Act (CRA) statement for each local
community served. The CRA
is designed to encourage banks to help meet the credit needs of their
communities. Under this
regulation, each bank office must make available a statement for public
inspection indicating, on a map, the communities served by that office
and the type of credit the bank is prepared to extend within the community.
The regulation contains the text of the notice that a bank is
required to provide the public in all full-service domestic branches.
requires each bank to maintain a file of public comments relating to
its CRA statement. The
Federal Reserve Board, in examining a bank, must assess its record in
meeting the credit needs of the entire community, including low- and
moderate-income neighborhoods, and must take account of the record in
considering certain bank applications.
Regulation C: Home
Regulation C requires
banks to disclose mortgage lending information to verify if the housing
credit needs of their communities are being met.
The regulation carries out the Home Mortgage Disclosure Act of
1975, providing citizens and public officials with information to determine
whether depository institutions are meeting the housing credit needs
of their local communities.
applies to commercial banks, savings banks, savings and loan associations,
building and loan associations, homestead associations, and credit unions
that make federally related mortgage loans.
Institutions with assets of $10 million or less and institutions
that do not have an office in a metropolitan statistical area or a primary
metropolitan statistical area are exempt.
Institutions covered by the regulation must disclose, annually,
the number and total dollar amount of residential mortgage loans originated
or purchased during the most recent calendar year, itemized by census
tract in which the property is located.
Institutions complying with a similar state or municipal law
or regulations which have adequate provision for enforcement may be
exempted from this regulation.
Regulation D: Reserve
Regulation D defines
the term deposit, specifies the amount of reserves that must be maintained
against transaction accounts, establishes the method for computing reserve
requirements, and imposes penalties for reserve deficiencies.
The Depository Institutions and Monetary Control Act of 1980
contains major amendments to the Federal Reserve Act which affect, and
simplify, Regulation D. The
changes to this regulation were phased in over a period of eight years,
affecting both member and nonmember banks.
are defined to include checking accounts, NOW accounts, share draft
accounts, savings accounts that allow automated transfers or third party
payments by automated teller machines and accounts that permit more
than a limited number of telephone or preauthorized payments or transfers
each month. Reserves must
be held equal to 3% of the first $25 million (adjusted annually since
1980 by an amount equal to .8 x percentage change in the level of deposits)
and between 8% and 14%, currently 12%, of deposits above $25 million
(similarly adjusted since 1980).
Time deposits are
deposits or certificates with original maturities of at least 7 days,
and savings accounts that allow the institution to require at least
7 days notice by the depositor before a withdrawal is made.
Nonpersonal and transferable time deposits with a maturity of
less than 1½ years are subject to a 3% reserve requirement.
Personal and nontransferable short-term time deposits, as well
as all long-term (over 1½ years) time deposits, possess 0% reserve requirements.
Exceptions to these
requirements are frequent. In
order to relieve small depository institutions from the burden of reserve
requirements, each depository institution need not bank the first $2
million (again, an adjusted figure since 1982) of its reservable liabilities.
At the discretion of the Board of Governors, the reserve requirements
may be temporarily raised for all depository institutions.
Such supplemental reserves can only be imposed if essential for
the conduct of monetary policy or the smooth working of the money markets.
Also, the board may, under extraordinary circumstances, temporarily
impose reserve requirements beyond the specified limits at specific
institutions due to circumstances particular to that institution.
are maintained in the form of vault cash or a noninterest bearing balance
held with a Federal Reserve Bank on a direct or indirect basis. Any bank maintaining full federal reserves will be permitted
access to all Federal Reserve services.
Furthermore, reserves may also be required on the deposit liabilities
of foreign branches, subsidiaries and international banking facilities
of both member and nonmember banks, but such reserve requirements are
at the discretion of the board.
Regulation E: Electronic
Regulation E establishes
the rights, liabilities, and responsibilities of parties in electronic
fund transfers (EFT) and protects consumers using EFT systems.
The major provisions of Regulation E are separated into the consumer's
right to know and the issuing institution's need to disclose certain
information. For the consumer's
protection, Regulation E prescribes rules for the solicitation and issuance
of EFT cards and governs consumer's liability for unauthorized electronic
fund transfers. With regard
to the issuing institution's responsibilities, the regulations requires
issuing institutions to disclose certain terms and conditions of EFT
services and to provide for documentation of electronic transfers. The regulation also sets up a resolution procedure for errors
on EFTs and covers notice of crediting and stoppage of preautorized
payments from a customer's account.
Regulation F: Disclosure
Requirements of Publicly Held Member Banks.
Regulation F requires
state-chartered banks with more than 500 stockholders and over $1 million
in assets or whose securities are registered on a national securities
exchange to periodically file financial statements.
Regulations issued by the Board of Governors in this area are
substantially similar to those issued by the Securities and Exchange
Commission. The Board of
Governors states that the principal aim of this regulation is to ensure
that investors have sufficient information to make informed investment
decisions and intelligently exercise their voting rights as stockholders.
In general, state-chartered
member banks must file registration statements, periodic financial statements,
proxy statements, statements of election contests, and various other
disclosures of interest to investors.
Officers, directors and principal stockholders must file reports
on their holdings in the bank.
The regulation also prohibits tender offers for the stock of
a bank subject to the regulation unless certain information is simultaneously
filed with the board.
Regulation G: Margin
Credit Extended by Parties Other than Banks, Brokers and Dealers.
Regulation G is
one of four regulations regarding credit extended to finance securities
transactions (see Regulations T, U and X).
This regulation applies to lenders, other than brokers, dealers,
and banks, who are required to register with the Board of Governors. Registration is required by any party who extends credit (secured
directly or indirectly by margin stock) in an amount of $200,000 or
more in a calendar quarter or who has outstanding credit in excess of
$500,000. Once a lender
is required to be registered, the regulation applies to all outstanding
loans which are secured by margin stock.
An exception to this general rule applies to lenders who extend
credit via an eligible employee stock option plan which will be used
to purchase margin stock of the employer.
Margin stock includes
any equity security listed on or having unlisted trading privileges
on a national stock exchange, any debt security convertible into such
a security, most mutual funds, and any security included on the board's
list of over-the-counter margin stocks.
Regulation H: Membership
Requirements for State-Chartered Banks.
Regulation H defines
the eligibility requirements of a state bank that wishes to become a
member of the Federal Reserve System.
This regulation also describes membership privileges and conditions
imposed on these banks, explains financial reporting requirements, and
sets out procedures for requesting approval to establish branches and
for requesting voluntary withdrawal from membership.
State-chartered member banks are prohibited from engaging in
practices that are unsafe or unsound or that result in violation of
law, rule, or regulation. The
regulation also imposes specific restrictions on the conduct of some
banking practices such as the issuance of letters of credit, acceptances,
and lending on the security of improved real estate.
To be eligible
for membership, a state bank must possess capital stock and surplus
that are considered adequate in relation to the character and condition
of its assets and deposit liabilities, both present and future. A mutual savings bank's eligibility is determined by whether
its surplus and undivided profits are equal to the capital requirements.
The decision to become a member of to withdraw from membership
has become less important since the Monetary Control Act of 1980 brought
all depository institutions under the jurisdiction of the Board of Governors
for the imposition of legal reserve requirements and has opened other
Reserve System services to any depository institution that maintains
transactions accounts or nonpersonal time deposits.
Regulation I: Member
Stock in Federal Reserve Banks.
Regulation I requires
each bank joining the Federal Reserve System to subscribe to the stock
of its District Reserve Bank in an amount equal to 6% of the member
bank's capital and surplus. Half
the total must be paid on approval, while the remainder is subject to
call by the Board of Governors.
A 6% dividend is paid on backed portions of Reserve Bank stock.
The stock is not transferable and cannot be used as collateral.
At all times, the 6% ratio of stock to capital must be maintained
with all payments directed through the member bank's reserve account.
A member bank's
ownership of Federal Reserve stock is subject to cancellation on discontinuance
of operations, insolvency or voluntary liquidation, conversion to nonmember
status through merger or acquisition, or voluntary or involuntary termination
Regulation J: Check
Collection and Funds Transfer.
Regulation J establishes
procedures, duties, and responsibilities among Federal Reserve banks,
the senders and payors of checks and other cash and noncash items, and
the originators and recipients of transfers of funds. Regulation J provides a legal framework for depository institutions
to collect checks and other cash items and to settle balances through
the Federal Reserve System. It
specifies terms and conditions under which Reserve banks will receive
items for collection from and present items to depository institutions
and establishes rules under which depository institutions return unpaid
items. The regulation also
specifies terms and conditions under which Reserve banks will receive
and deliver transfers of funds from and to depository institutions.
In accordance with this function, each Federal Reserve Bank shall
issue an operating circular governing the details of its funds transfer
operations and other matters deemed appropriate.
Regulation K: International
Regulation K governs
the international banking activities of domestic banks and the domestic
banking activities of foreign banks.
Regulation K was promulgated in substantially its present form
in June 1979. Prior to
that date, overseas activities subject to board jurisdiction were covered
in several separate regulations.
However, the International Banking Act of 1978 provided the motivation
for the consolidation of these regulations.
The purpose of the current regulation is to grant Edge Act corporations
powers sufficiently broad to enable them to compete with foreign banks
in the United States as well as abroad and to provide all segments of
the U.S. economy with a means of financing international trade, particularly
that may be engaged in overseas under Regulation K must generally be
of a financial nature. Member
banks' direct overseas investments in foreign companies are limited
to foreign banks. Bank
holding companies and Edge Act corporations, on the other hand, can
directly invest in foreign companies engaged in certain nonbank activities,
as well as in foreign banks. Member
banks can only invest in foreign nonbank companies by doing so indirectly
through Edge Act corporations.
As to foreign bank operations in the United States, the regulation
reflects limitations on interstate banking and specific exemptions from
nonbanking prohibitions. With
respect to loans by domestic banking organizations to foreign borrowers,
the regulation provides for the establishment of special reserves against
certain international rules for accounting for fees on international
Regulation L: Interlocking
Regulation L tries
to ensure competition in the banking industry by restricting the interlocking
relationships that a management official may have with other depository
organizations. The regulation
prohibits a management official of a state member bank or bank holding
company from serving simultaneously as a management official of another
depository organization if both organizations are not affiliated, or
are very large, or are located in the same local area.
included a grandfather clause, providing a 10-year transition period
which ended in 1988, for certain interlocks and provided exceptions
for interlocks involving depository institutions in low-income or economically
depressed areas, organizations owned by women or minority groups, newly
chartered organizations, and organizations facing disruptive management
loss or conditions endangering safety and soundness.
Regulation M: Consumer
Regulation M implements
the consumer leasing provisions of the Truth in Lending Act.
The purpose of this regulation is to assure that lessees of personal
property are given meaningful disclosures of lease terms.
The disclosures required under this act must be made before the
consummation of the lease agreement.
Property subject to this regulation includes personal property
leased for personal, family or household use for a minimum of four months.
Regulation M requires
leasing companies to disclose in writing the cost of a lease, including
any security deposit, monthly payments, license, registration, taxes
and maintenance fees and, in the case of an open end lease, whether
a "balloon payment" may be applied.
It also requires written disclosure of the terms of a lease,
including insurance, guarantees, responsibility for servicing property,
standards for wear and tear, and any option to buy.
Regulation N: Relationships
with Foreign Banks.
The purpose of
Regulation N is to give the Board of Governors the responsibility for
approving in advance any negotiations or agreements by Federal Reserve
banks with foreign banks, bankers or governments.
The regulation recognizes a Reserve Bank's authority to engage
in foreign open market operations, however, Reserve banks must keep
the Board fully advised of all foreign relationships, transactions and
Under the direction
of the Federal Open Market Committee, a Reserve Bank maintaining accounts
with a foreign bank may undertake negotiations, agreements, or contracts
to facilitate open market transactions.
The Board of Governors has reserved the right to be represented
at any meeting concerning such negotiations and agreements, but in any
case must be advised of such meetings.
In addition, on a quarterly basis, Reserve banks must report
to the Board on accounts they maintain with foreign banks.
Regulation O: Loans
to Executive Officers of Member Banks.
Regulation O prohibits
member banks from extending credit to their own executive officers and
prohibits insured banks that maintain correspondent accounts with each
other from extending credit to one another's executive officers on preferential
terms. In addition, banks
whose officers, directors, or principal stockholders who have received
preferential extensions of credit from other banks are prohibited from
opening correspondent relationships with those banks.
officer and principal shareholder of an insured bank is to report annually,
to the bank's board of directors, the amount of his indebtedness, and
that of "related interests," to each of the insured bank's
correspondent banks. The
disclosure must include the terms and conditions of the loan.
A "related interest" is a company managed by political
or campaign committees controlled by or benefiting bank officials and
Each insured bank
is required to include with its quarterly report of condition the aggregate
extensions of credit by the bank to its executive officers and principal
shareholders, together with the number of these individuals whose extensions
of credit from the bank are 5% or more of the bank's equity capital
or $500,000, whichever is less.
Upon request, the names of such individuals must be publicly
Regulation P: Member
Bank Protection Standards.
Regulation P sets
minimum standards for security devices and procedures state member banks
must establish to discourage robberies, burglaries, and larcenies and
to assist in identifying and apprehending persons who commit such acts.
A member bank must appoint a security officer to develop and
administer a security program at least equal to the requirements of
the regulation. The program
must be in writing and approved by the bank's directors.
Annually, each state-chartered member bank must certify its compliance
with the regulation by filing a signed statement with its District Reserve
Bank. The regulation also
defines the prescribed penalties imposed each day a member bank is found
in violation of security standards.
Regulation Q: Interest
Regulation Q governs
the payment of interest on deposits held by banks that are members of
the Federal Reserve System s well as U.S. branches and offices of foreign
banks. This regulation
defines interest for purposes of regulation and deposit categories.
In addition, regulation Q includes rules governing the advertising
of deposits by member banks.
Institutions Deregulation Act of 1980 established the phaseout of interest
rate ceiling on time and savings deposits which concluded in April 1987.
The removal of interest rate ceilings is intended to enable all
depositors, including holders of time and savings deposits, to receive
a market rate of return on their deposits.
The authority of the Board of Governors to prescribe rules governing
member banks' payment of interest and establishment of classes of deposits
was transferred to the Depository Institutions Deregulation Committee
Regulation R: Interlocking
Relationships Between Securities Dealers and Member Banks.
Regulation R aims
at avoiding any potential conflict of interest, collusion or undue influence
on member bank investment policies or investment advice to customers
due to interlocking relationships between the personnel of securities
dealers and member banks. This
regulation restates the prohibition in the Glass-Steagall Act that prohibits
individuals involved in various phases of securities activities from
serving as a director, officer, or employee of a member bank.
banks may not underwrite securities, they may purchase investment securities
for their own purposes as long as the total amount of these securities
does not exceed 10% of their capital stock or unimpaired surplus fund. The regulation does provide an exemption for individuals in
government securities transactions.
These securities generally include those of the United States,
the International Bank for Reconstruction and Development, the Tennessee
Valley Authority, and the general obligations of states and municipalities. The aforementioned restrictions do not apply to any government
Regulation S: Reimbursement
for Providing Financial Records.
Regulation S prescribes
the rates and conditions for reimbursement of necessary costs directly
incurred by financial institutions in providing customer's financial
records to government authorities.
Regulation S implements a section of the Right to Financial Privacy
Act requiring government authorities to pay a reasonable fee to financial
institutions for providing financial records of individuals and small
partnerships to federal agencies.
Cost of searching
for, reproducing and transporting requested data is covered with certain
exceptions. Search time
accounts for the personnel costs of complying with the regulation and
is paid on a set man/hour wage rate regardless of the actual wage of
the employee conducting the search.
Reproduction costs are also reimbursed on such a predetermined
scale, although, actual transportation costs are returned.
Regulation T: Margin
Credit Extended by Brokers and Dealers.
Regulation T governs
credit extensions, made in the course of business, by securities brokers
and dealers, including all members of national securities exchanges.
This is one of three regulations governing the extension of credit
for securities. This one
examines the broker-dealer relationship and assures that no preferential
credit treatment is afforded brokers nor dealers.
In general, such entities may not extend credit to their customers
unless the loan is secured by "margin securities" nor may
they arrange for credit to be extended by others on terms better than
they themselves are permitted to extend.
The maximum credit
that may be extended is set by the board as a percentage of the current
market value of the securities.
When securities on which credit has been extended are withdrawn
from an account, cash or securities of an equivalent loan value must
be deposited or a portion of the account liquidated so as to maintain
the prescribed loan value of the account.
also prescribes rules governing cash transactions among brokers, dealers
and their customers. It
also limits the sources from which borrowing brokers and dealers may
secure funds in the ordinary course of their business.
Regulation U: Margin
Credit Extended by Banks.
Regulation U is
the third regulation governing margin credit.
In this regulation, credit issued by banks for the purchasing
or carrying of securities on margin is limited if the credit is secured
directly or indirectly by stock.
Any time a loan is made in which a margin stock serves as collateral,
the bank must have the customer execute a purpose statement, Form U-1.
If the purpose is to purchase or carry any margin stock, the
loan is a purpose credit. Generally,
if the purpose credit is stock-secured, it is subject to credit limitations
and other restrictions of regulation.
For example, the amount of the loan may not exceed the maximum
loan value of the securing stock prescribed by the board.
Margin stocks include
any equity security listed on or having unlisted trading privileges
on a national security exchange, any debt security convertible into
such a security, most mutual funds, and any security included on the
board's list of over-the-counter margin stock.
Regulation V: Guarantee
on Loans for National Defense Work.
Regulation V facilitates
and expedites the financing of contractors, subcontractors, and others
involved in national defense work.
In addition, this regulation sets forth the procedures and standards
that Federal Reserve banks must observe in fulfiling their responsibilities
as fiscal agents for those government departments and agencies authorized
to guarantee loans for national defense purposes.
sets forth the maximum rate of interest, guarantee fees, and commitment
fees that may be charged for a guaranteed loan.
By adopting a maximum interest rate equal to the rate it charges
its most creditworthy business customers, a financing institution will
be able to adjust the interest rate to market conditions.
Nevertheless, the guaranteeing agencies have discretionary authority
to set the ceiling rate of interest.
If the agency exercises this authority, it cannot discriminate
among loan applicants in imposing a higher charge.
Regulation W (revoked): Extensions
of Consumer Credit.
Regulation W prescribed
minimum downpayments, maximum maturities, and other terms applicable
to extensions of consumer credit during World War II. Regulation W was revoked in 1952.
Regulation X: Borrowers
Who Obtain Margin Credit.
Regulation X extends
the provisions of Regulations G, T and U to certain borrowers and to
certain types of credit extensions not specifically covered by those
X applies to borrowers who, for the purpose of purchasing or carrying
securities, obtain credit in the United States and to borrowers who
act on behalf of United States persons.
This regulation requires that the subject borrowers obtaining
credit within the U.S. comply with the margin credit regulation that
applies, but if the credit is obtained outside the U.S., the subject
borrowers must comply as if the foreign lender were subject to Regulation
G, T, or U. In general,
whenever the regulation applies, the borrower is responsible for ensuring
that the credit conforms to one of the three margin regulations.
The determination as to which one applies is dependent upon the
nature of the lender and is specified in the regulation.
The following borrowers
are exempt from the regulation and the controlling statue:
(1) any borrower who obtains purpose credit within the United
States unless the borrower willfully causes the credit to be extended
in contravention of Regulation G, T, or U and (2) any borrower whose
permanent residence is outside the United States who has obtained or
has outstanding during any calendar year no more than $100,000 in purpose
credit obtained outside the United States.
Regulation Y: Bank
Regulation Y relates
to the bank and nonbank expansion of bank holding companies and to the
divestiture of impermissible nonbank interests.
Regulation Y also governs the acquisition of a bank by individuals.
Any organization that owns a bank is a bank holding company and
thus is subject to this regulation.
However, unless an organization takes demand deposits and offers
commercial loans it is not considered a bank and thus is not affected
by this regulation. In
the early 1980s, entry of nonbank banks was rampant as these businesses
tried to avoid regulation.
contains the presumptions and procedures the board uses to determine
whether a company controls a bank and is thus a bank holding company. The regulation also explains the procedures for obtaining board
approval to become a bank holding company and procedures to be followed
by bank holding companies acquiring voting shares of banks or nonbank
companies. In addition,
the board has specified in the regulation those nonbank activities that
are closely related to banking and therefore permissible for bank holding
companies. Foreign activities of domestic bank holding companies and permissible
activities of foreign bank holding companies are dealt with separately
within the regulation.
Regulation Z: Truth
Regulation Z prescribes
uniform methods of computing the cost of credit, disclosure of credit
terms, and procedures for resolving errors on certain credit accounts.
Consumer credit is generally defined as credit offered or extended
to individuals for personal, family, or household purposes, where the
credit is repayable in more than four installments or for which a finance
charge is imposed. The
purpose of the Truth in Lending Act is to ensure that credit and leasing
terms are disclosed so that customers are able to compare alternative
The major provisions
of the regulation require lenders to (1) provide borrowers with meaningful,
written information on essential credit terms, including the cost of
credit expressed as an annual percentage rate; (2) respond to consumer
complaints of billing errors on certain credit accounts within a specific
period; (3) identify credit transactions on periodic statements of open
end credit accounts; (4) provide certain rights regarding credit cards;
(5) informs consumers of the right to rescind certain credit transactions
that are secured by a consumer's principal dwelling within a specified
period; and (6) comply with special requirements when advertising credit.
BOARD OF GOVERNORS
OF THE FEDERAL RESERVE SYSTEM. Federal
Federal Reserve Regulatory Service.
The Federal Reserve System:
Purposes and Functions.
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