DEFINITION of Regulation Y

Regulation Y is a Federal Reserve action that regulates corporate bank holding company practices as well as certain practices of state-member banks. Practices or issues that fall under Regulation Y governance include the establishment of minimum capital reserves (ratio of reserves to assets) for bank holding companies, certain bank holding company transactions and the definition of nonbanking activities for bank holding companies, state member banks and foreign banks operating in the U.S.


Regulation Y outlines several bank holding company transactions that require Federal Reserve approval:

  • The acquisition of, or merger with, another bank holding company
  • Directly or indirectly engaging in nonbanking activity
  • Individual or group acquisition of a state member bank or bank holding company
  • Appointment of a new senior officer or director by a troubled bank holding company or state member bank

After the introduction of Regulation Y, the Federal Reserve later amended the policies to streamline the approval process. The changes reduced the regulatory burden put on banks deemed to be “well-run.” This also served to make the supervisory process more risk-oriented.

Changes to Regulation Y that Reduced Scrutiny of Well-Run Banks

Part of the changes included narrowing the focus of the applications process to only analyze the specific proposals put forth by the banks. When banks previously submitted applications under Regulation Y, they were potentially subjected to comprehensive analysis of compliance issues unrelated to the transactions or appointments in question.

The Federal Reserve also eliminated certain application requirements and procedures for well-managed banks. Restrictions were removed that related to the conduct of certain nonbanking activities.

The criteria to be designated a well-managed bank includes meeting well-capitalized standards, maintaining a satisfactory rating and having no recent history as the subject of supervisory action. The satisfactory rating is contingent upon the bank’s management and composite ratings both being deemed satisfactory by the Federal Reserve. The same is true for any applicable compliance rating issued to the bank.

The streamlining of Regulation Y still includes a 30 day public comment period regarding the transaction the bank applied for approval on.

Some transactions do not require Federal Reserve approval. This includes the acquisition of securities in a fiduciary capacity by a bank in good faith, granting it control of voting securities of another bank unless certain stipulations apply. Those stipulations include the acquiring bank obtaining sole discretionary authority for more than two years on voting securities. Federal Reserve approval would also be necessary if the acquisition benefits the acquiring bank, its employees, subsidiaries, or shareholders.