The Federal Reserve Should Assure Compliance With the 1970 Bank Holding Company Act Amendments

GGD-80-21: Published: Mar 12, 1980. Publicly Released: Mar 12, 1980.

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Major bank and bank holding company legislation since 1933 clearly demonstrates congressional intent that banking businesses be separate from nonbanking businesses. Bank holding companies control banks but also engage in certain nonbanking activities. With enactment of the Bank Holding Company Act in 1956, and its amendments in 1966 and 1970, the Congress defined the term "bank holding company" and, in general terms, the activities in which the companies may engage. The 1970 amendments required bank holding companies to qualify for an exemption under the Act, divest their nonbanking activities, or divest their banks by December 31, 1980. As part of a review of the Federal Reserve's supervision and regulation of bank holding companies, GAO assessed the management of the divestiture requirement in the 1970 amendments to the Act.

The Federal Reserve relied entirely on voluntary compliance with divestiture requirement amendments. While it set voluntary milestones for affected companies to meet, it did not require them to comply with its guidelines for filing plans or establish mandatory filing dates to ensure that holding companies would comply by the statutory deadline, and did not publish a policy on enforcing the deadline until December 1979. The number of companies that had not complied with the divestiture requirements at the time of the review cast doubt on the possibility that full compliance could be achieved before the December 1980 deadline.

Recommendation for Executive Action

  1. Status: Closed

    Comments: Please call 202/512-6100 for additional information.

    Recommendation: As a part of the Federal Reserve's future effort to ensure compliance with the divestiture requirement of the 1970 amendments, the Chairman of the Board of Governors of the Federal Reserve System should (1) require bank holding companies to declare the method by which they will comply with the requirement; (2) establish a mandatory filing date for retention applications and divestiture plans; and (3) require companies filing a divestiture plan to adhere to the reporting requirements in the February 1977 Board policy statement on divestitures.

    Agency Affected:


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