Putting the Gramm-Leach-Bliley Act to Work

Immediately following the passage of the Gramm-Leach-Bliley Act (GLB) in early November, the Board of Governors and other banking agencies began the considerable task of drafting regulations to implement the legislation. Public comments on the proposed regulations, especially those from financial institutions, are a critical part of this process.

New Financial Powers

On Jan. 19, the Board issued interim amendments to Regulation Y that address how bank holding companies may exercise the new financial powers authorized by GLB. The interim rule establishes a simple process by which a bank holding company can certify itself as a "financial holding company" (FHC) and engage in a broader range of financial businesses. The Board has published changes to Regulation H that establish a similar process to enable state member banks to operate financial subsidiaries.

The Board has also worked with the U.S. Treasury to define the scope of the merchant banking authority. On March 17, it issued an interim rule that implements the merchant banking provisions of GLB. The rule would prohibit the FHC from participating in the day-to-day management of the companies it invests in, limit the term of most investments to 10 years and cap total investments at the lesser of Tier 1 capital or $6 billion. The Board and Treasury have also issued a proposed rule that would require FHCs to deduct 50 percent of such investments from Tier 1 capital. Comments on these rules are due May 22.

In addition, the Board has issued an interim rule amending Regulation Y that lists the financial businesses permissible for financial holding companies under GLB and establishes procedures for engaging in these activities. The rule also outlines a process for asking the Board to add other activities to the list. Comments are due May 12.

Consumer Privacy

On Feb. 22, the Board and other federal agencies proposed a new Regulation P, Privacy of Consumer Financial Information. One of the most difficult issues in implementing the consumer privacy provisions of GLB is defining the term "nonpublic personal information" and determining the scope of the exemption for "publicly available information." The agencies sought comment on the proposed definitions of these terms, how financial institutions will comply with the notice and opt-out requirements, and ways in which the regulation can be clarified. They are currently working together to amend the regulation as necessary.

Community Reinvestment Act Sunshine

Implementing GLB's CRA agreement "sunshine" provision is also a complex task. The Board and other banking agencies will issue a proposed rule for comment in the near future. They will seek comments on what types of agreements should be covered by the public disclosure requirements, what information should be contained in the required disclosures and annual reports, and, perhaps, how compliance with the sunshine requirements should be enforced.

Transactions with Financial Affiliates

Bringing down the walls between commercial banking, investment banking and insurance underwriting increases the importance of sections 23A & B of the Federal Reserve Act ("Relations with Affiliates" and "Restrictions on Transactions with Affiliates," respectively). GLB extends sections 23A & B to regulate transactions between banks and their own financial subsidiaries. The Board will soon publish a proposed regulation to address such transactions and formalize many of its existing interpretations of Section 23A.

On March 10, the Board approved an interim rule that applies sections 23A & B to extensions of intraday credit and to derivative transactions. Comments on this rule are due May 12.

The Board welcomes your comments on all proposals. Full text and up-to-date information regarding Federal Reserve Board actions is available through the Board's web site:


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