Pub. 10 2019 Issue 2

Summer 2019 23 West Virginia Banker Sandra M. Murphy and Amy J. Tawney are attorneys in the Charleston office of Bowles Rice LLP. Should you require more information, please feel free to contact the authors directly. Ms. Murphy is the leader of the firm’s Banking and Financial Services team. She concentrates her practice on banking, commercial and financial ser- vices and securities law. She can be reached at (304) 347-1131 or by e-mail at smurphy@bowlesrice.com. Ms. Tawney focuses her practice on bank- ing law, mergers and acquisitions, securities law and regulatory matters. She can be reached at (304) 347-1123 or by e-mail at atawney@bowlesrice.com. Reserve as an appendix to the proposal, summarizes these presumptions. The tiered presumptions are rebutta- ble presumptions and absent unusual circumstances, the Federal Reserve generally would not expect to find that a company controls another company where the first company is not pre- sumed to control the second company under the proposal. Other Presumptions of Control In addition to the tiered presumptions, the proposal also revises and codifies several existing presumptions of con- trol including: • Management Agreements. Ex- pands the presumption of control to include other types of agree- ments or understandings that allow a company to direct or exercise significant influence over the core business or policy decisions of the second company and clarifies that a management agreement includes an agreement where a company is a managing member, trustee or gen- eral partner of a second company. • Investment Advice. Includes a presumption of control where an investment adviser to an investment fund controls 5% or more of any class of voting securities or 25% or more of the total equity capital (ex- cept for the 12-month initial seeding period of the fund). • Accounting Consolidation. In- cludes a presumption of control where a company consolidates a second company for accounting purposes under U.S. generally ac- cepted accounting principles. • Divestitures. Revises the Federal Reserve’s prior practice of applying a more stringent standard for de- termining non-control in divestiture cases than cases where a company seeks to establish a new non-con- trolling interest. • Combined Ownership of a Com- pany and Its Senior Management Officials and Directors. Excludes the following from the existing presumption of control: if the first company owns less than 15% of the voting securities of the second company and its senior manage- ment officials and directors control 50% or more of the voting securities of the second company. New Presumption of Non-Control The proposal expands the current presumption of non-control from less than 5% to less than 10% of any class of voting securities of another company provided that no other presumptions of control are triggered. This is a clari- fication of prior practice of the Federal Reserve under which companies would enter into passivity commitments to avoid triggering a control determina- tion. Impact of Proposal Although the proposal does not vary significantly from the current Federal Reserve regulations and interpretations, if the proposal is adopted, it will pro- vide much needed clarity to investors. Investors will be able to invest in banks and bank holding companies at levels higher than 5% and 10% of voting securities without the need for passivity commitments as long as the tiered pre- sumptions are followed. The flexibility and transparency provided by the new regulation should provide a consistent framework for investments in and by banks and bank holding companies.  Investors will be able to invest in banks and bank holding companies at levels higher than 5% and 10% of voting securities without the need for passivity commitments as long as the tiered presumptions are followed. The flexibility and transparency provided by the new regulation should provide a consistent framework for investments in and by banks and bank holding companies.