The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
FEDERAL RESERVE BANK OF NEW YORK I C ir c u l a r N o . 6 87 3 I I D e c e m b e r 3 0 , 1971 | BANK HOLDING COMPANIES — Proposed Revision of Procedures for Engaging in Certain Nonbanking Activities — Suspension of Procedures Under §225.4(3) of Regulation Y To All Banks, and Others Concerned, in the Second Federal R eserve District: The following statement was issued December 22 by the Board of Governors of the Fed eral Reserve System: The Board of Governors of the Federal Reserve System today proposed further re visions of its rules permitting bank holding companies to make de novo entry into ac tivities closely related to banking and to acquire small finance companies. Under the proposal, the Board would determine that, with respect to activities it has designated as closely related to banking, entry by a bank holding company through a new subsidiary — rather than by acquiring companies already engaged in those activities— is likely to produce benefits to the public that outweigh possible adverse effects. Con sequently, there would be no necessity for a hearing in such cases except when the Board, in its discretion, determined the need for one. The only bank-related activity to which the proposed procedure for de novo entry would not be applicable is the sale of insurance in a community that the holding company demonstrates has inadequate insurance agency facilities at the present time. A bank holding company may now acquire a finance company with assets of less than $10 million without prior notification to its Reserve Bank. Such notification is required within 30 days after the transaction. The proposal would require the holding company also to publish in a newspaper in the communities to be served notice of such an acquisi tion within 30 days of the transaction. Under the proposal, bank holding companies may acquire small finance companies that make credit life or credit disability insurance available to their borrowers through a group insurance policy issued to the finance company. The Board also suspended its existing simplified procedures pending consideration of the proposed changes in its regulation. Comments on the proposal should be submitted to the Board by February 1, 1972. Printed on the following pages is an excerpt from the Federal Register of December 28, containing the text of the proposed amendments. Comments thereon should be submitted by February 1, 1972 and may be sent to our Bank Applications Department. Alfred Hayes, President. PROPOSED RULE MAKING FEDERAL RESERVE SYSTEM E 12 CFR Part 225] [Reg. TJ BANK HOLDING COMPANIES Procedures for Engaging in Certain Nonbanking Activities Section 4(c) (8) -of the Bank Holding Company Act provides, among other things, that determinations that activi ties are closely related to banking may be made “by order or regulation” and that the Board may differentiate between activities commenced de novo and activi ties commenced by the acquisition of a going concern. Pursuant to these provisions and the provisions of section 5 of the Act, the Board initiated a rule making proceed ing. Notice of the proposed rule making was published in the F e d e r a l R e g i s t e r on January 29, 1971, and public hearings on the proposals were held before members of the Board on April 14, April 16, and May 12, 1971. After full consideration of all comments and views presented by in terested persons, the Board adopted amendments to Regulation Y on May 20, June 10, August 5, and August 19, 1971. By the May 20 amendments, the Board adopted procedures under which holding companies may engage in activities that the Board has determined to be closely related to banking. With respect to an ac tivity to be engaged in de novo, a hold ing company (1) must publish notice of a proposed activity in a local newspaper, (2) within 30 days of publication, must furnish the appropriate Reserve Bank with copies of said notice, and (3) 45 days after furnishing said information to said Reserve Bank, may engage in the proposed de novo activity unless the holding company is notified to the con trary within that time or unless per mitted to consummate at an earlier date. Where an acquisition of a going concern is involved, the holding company must file a formal application and await Board consideration of the public inter est aspects of the transaction, namely, a Board determination whether the pro posed acquisition can reasonably be ex pected to produce benefits to the public, such as greater convenience, increased competition, or gains in efficiency, that outweigh possible adverse effects, such as undue concentration of resources, de creased or unfair competition, conflicts of interests, or unsound banking prac tices. On August 19, 1971, the Board adopted simplified procedures with respect to (1) operating a finance company with assets of less than $10 million; (2) engaging in activities that are shifted from a bank to its holding company or an affiliated sub sidiary in the holding company system; and (3) engaging in certain insurance agency activities. As a result of its continuing review of Regulation Y, the Board proposes to amend its procedures regarding activi ties authorized under section 4(c) (8) of the Act. The proposals herein are based on the oral and written presentations made in connection with the Board’s rule making proceeding (including the hear ings on April 14, April 16, and May 12) and the Board’s experience under the regulatory provisions that resulted from that rule making proceeding. In view of the extensive consideration given to the public interest factors of holding companies engaging in bank re lated activities, the Board believes that, with respect to the designated activities, de novo entry by a bank holding com pany can reasonably be expected to pro duce benefits to the public and that such benefits can reasonably be expected to outweigh possible adverse effects within the meaning of section 4(c) (8) of the Act. Accordingly, the Board believes that a regulation providing procedures for de novo entry by a holding company into such activities, without the necessity for further opportunity for hearing, is war ranted. Adoption of the proposal herein would mean that de novo entry into any of the activities specified in § 225.4(a) (except § 225.4(a) (9) (iii) (b) ) may be consummated under the proposed pro cedures without any further opportunity for hearing. However, the Board in its discretion, may afford interested persons a hearing, whenever the Board finds that the circumstances of a particular matter so warrant. In connection with finance companies, the proposal incorporates the simplified procedures which the Board adopted on August 19, but with the following modifications: (a) The holding company must pub lish notice of the acquisition within 30 days after consummation of the trans action, and (b) A finance company whose insur ance involvement is limited to making available to its borrowers (at each bor rower’s option) credit life and/or credit disability insurance covering the balance on the borrower’s debt, through a group insurance policy in which the finance company is the assured policyholder, may be acquired under the proposed simpli fied procedures. With respect to the shifting of activi ties to a collateral affiliate or a parent holding company, the proposal makes no substantial change in the current pro visions of § 225.4(b) (3) (i) (b). Pending consideration of the propos als herein, the Board has suspended the operation of § 225.4(b) (3) of Regulation Y until further notice. To aid in the consideration of this matter by the Board, interested persons are invited to submit relevant data, views, or arguments. Any such material should be submitted in writing to the Secretary, Board of Governors of the Federal Reserve System, Washington, D.C. 20551, to be received not later than February 1, 1972. Such material will be made available for inspection and copy ing upon request, except as provided in § 261.6(a) of the Board’s rules regarding availability of information. Under the proposal, § 225.4 of Regula tion Y would be amended as follows: The fourth sentence of the opening portion of § 225.4(a), starting with the words “The following activities” and ending with the first colon, would be re placed by the following sentences; and paragraph (b) (1) and (3) would be amended to read as follows: § 225.4 Nonbanking activities. (a) Activities closely related to bank ing or managing or controlling banks. * * • With respect to the activities designated below, the Board has deter mined that de novo entry by a bank holding company can reasonably be ex pected to produce benefits to the public and that such benefits can reasonably be expected to outweight possible adverse effects within the meaning of section 4(c)(8) of the Act except that, with respect to the activities in subparagraph (9) (iii) (b) of this paragraph, the Board has determined only that the activities are closely related to banking. Accord ingly, the procedures of paragraph (b) (1) of this section are prescribed for de novo entry into the designated activities. With respect to the acquisition of a going concern, the Board has concluded that the activities designated below are closely related to banking but the bank holding company must await a Board determina tion whether the proposed acquisition can reasonably be expected to produce benefits to the public that outweigh pos sible adverse effects within the meaning of section 4(c)(8) of the Act. Accord ingly, the procedures of § 225.4(b) (2) are prescribed for the acquisition of a going concern. (b) (1) De novo entry. A bank holding company may engage de novo (or con tinue to engage in an activity earlier commenced de novo) directly or indi rectly, solely in activities described in paragraph (a) of this section (except in surance agency activities under para graph (a) (9) (iii) (b) of this section) 45 days after the holding company has in formed its Reserve Bank of its proposal to engage in such activity, unless the company is notified to the contrary with in that time or is permitted to consum mate the transaction at an earlier date. Every such notification shall be accom panied by a copy of a publication (in sub stantially the same form as F.R. Y -4A ) of the proposal to engage in the activities published within the preceding 30 days in a newspaper(s) of general circulation in the communities to be served. Such notification to the Reserve Bank shall provide information as to the general nature and extent of the activities to be engaged in. Whenever necessary to ef fectuate the purposes of the Act, the Board may require suspension or dis continuation of any action taken, or divestiture of any interest acquired, on the authority of this provision, and may withdraw such authority with respect to any particular holding company. The Board has determined that (with the exception noted above) the activities described in paragraph (a) of this sec tion are so closely related to banking as to be a proper incident thereto and that de novo entry into said activities can reasonably be expected to produce bene fits to the public that outweigh possible adverse effects within the meaning of PROPOSED RULE MAKING s e ctio n 4 (c ) (8) o f th e A ct. A cco r d in g ly , u nless th e B o a rd a t its d iscretion a fford s in te re ste d p erson s a n o p p o rtu n ity to p r e se n t fu r th e r o ra l o r w ritten view s or d a ta o r o rd e rs a h e a rin g , a tr a n s a ctio n m a y b e co n su m m a te d u n d er th is s u b p a r a g ra p h w ith o u t a n y fu r th e r n o tice o r o p p o r tu n ity f o r h e a rin g . I f adverse c o m m e n ts o f a su b sta n tiv e n a tu re a re r e ce iv e d b y th e R e se rv e B a n k w ith in 30 da ys a ft e r th e c o m p a n y h as p u b lish ed its p r o p o s a l1 o r, i f it oth erw ise a pp ea rs a p p r o p r ia te in a p a rticu la r case, th e R e serve B a n k m a y in fo r m th e co m p a n y th a t (i) th e p ro p o s a l sh all n o t be c o n su m m a te d u n til s p e cifica lly a u th orized b y th e R e se rve B a n k or b y th e B o a rd or (ii) th e p ro p o sa l sh a ll be p rocessed in a c c o r d a n c e w ith th e p roced u res o f s u b p a ra g r a p h (2 ) o f th is p a ra g ra p h ( b ) . A b a n k h o ld in g c o m p a n y m a y en ga ge de n o v o in in su ra n ce a g e n cy a ctivities u n d er p a ra g r a p h (a ) (9) (iii) (b ) o f this s ection o n ly in a c c o r d a n c e w ith th e p roced u res o f s u b p a ra g ra p h (2 ) o f th is p a ra g ra p h (b ). (i) M a k in g, a cq u irin g , or serv icin gc irc u la tio n in th e co m m u n itie s t o be loa n s or o th e r ex ten sion s o f cre d it fo r served, a n d ( c ) w h en ev er n e ce ss a ry to person a l, fa m ily , or h ou s e h o ld p u rp oses: e ffectu a te th e p u rp oses o f th e A ct, th e Provided, T h a t th e co m m e n ce m e n t or B o a rd m a y req u ire su sp en sion o r d is c o n ex p a n sion o f su ch a ctiv ity does n o t in tin u a tion o f a n y a ctio n ta k en , o r d iv e sti volv e a n a cq u isition o f assets o f $10 m il tu re o f a n y a cq u isition m a d e, o n a u t h o r lio n or m o re (or th e a cq u isition o f shares ity o f th is p rov ision , a n d m a y w ith d r a w o f a c o m p a n y h a v in g su ch assets) a n d s u ch a u th o r ity w ith re s p e ct to a n y p a r in cid e n ta l in su ra n ce a ctivities are lim it ticu la r h o ld in g c o m p a n y ; ed to th e m a k in g a v a ila b le t o a b orrow er, (ii) E n g a g in g in a ctivities d e scrib e d in a t th e b o rro w e r’s op tio n , cre d it life in p a ra g r a p h (a ) o f th is s e ctio n th a t a re s u ra n ce 2 a n d /o r cre d it d isa b ility in su r s h ifte d fr o m a b a n k in th e h o ld in g c o m a n ce 3 on a grou p basis u n d er w h ic h th e p a n y system a n d w ere e n g a g ed in b y th e c re d ito r is issued a grou p m a ster p o licy b a n k eith er de n o v o o r as a resu lt o f a as a p o licy h o ld e r a n d th e b o rro w e r r e m erg er tra n s a ctio n d es crib e d in a n d a p ceives a ce rtifica te o f in su ra n ce e v id e n c p ro v e d b y a F ed era l su p ervisory a g e n c y in g his cov era g e a n d s ta tin g th e p r in c i p u rsu a n t to s e ctio n 1 8 (c) o f th e F e d e ra l p a l p rov ision s o f th e g rou p p o lic y ; e x In su ra n ce A ct (12 U .S.C. 1 8 2 8 ( c ) ) , 45 c e p t th a t (a ) n o h o ld in g c o m p a n y m a y days a fte r th e h o ld in g c o m p a n y h a s i n a cq u ire m o re th a n $50 m illion in assets fo r m e d its R eserve B a n k o f its p r o p o s a l in a n y ca le n d a r y ea r u n d er th e p r o v i to s h ift su ch a ctiv ity , u n less th e c o m p a n y sion s o f th is su b d ivision , (b ) w ith in 30 is n o tifie d to th e c o n tra ry w ith in th a t d a ys a fte r th e co n su m m a tio n o f su ch an tim e o r is p erm itted to co n su m m a te th e a cq u isition , th e h o ld in g c o m p a n y sh a ll tr a n s a ctio n a t an ea rlier da te. S u ch n o t i in fo r m its R eserve B a n k o f th e a cq u is i fica tio n sh a ll p ro v id e in fo r m a tio n as to tion , a n d every su ch n o tifica tio n sh a ll be th e gen era l n a tu re a n d e x te n t o f th e a c a c c o m p a n ie d b y a c o p y o f a n o tic e o f th e tivities to be s h ifte d a n d th e lo c a tio n s * * * * * a cq u isition p u b lish ed w ith in th e p r e c e d (3) Simplified procedures. T h e p r o in g 30 days in a n ew sp a p er (s) o f gen era l in v olved . W h e n e v e r n e ce ssa ry to e ffe c t u a te th e p u rposes o f th e a ct, th e B o a r d ced u res o f s u b p a ra g ra p h s (1) a n d (2) m a y req u ire susp ension o r d is c o n tin u a o f th is p a ra g r a p h (b ) sh all n o t a p p ly tio n o f a n y a ctio n taken , o r d iv e stitu re w ith re sp e ct to a h o ld in g co m p a n y or a 2 Credit life insurance insures the creditor su b sid ia ry th e re o f e n g a g in g in th e f o l against loss in case of death of a bor o f a n y in terest a cq u ired , o n a u th o r ity o f th is p rov ision , a n d m a y w ith d ra w s u ch rower. The amount of insurance may be con lo w in g : a u th o rity w ith resp ect to a n y p a r tic u la r stant or decreasing depending upon whether h o ld in g co m p a n y . 1 If a Reserve Bank decides that adverse the loan is to be repaid in one payment or, comments are not of a substantive nature, the person submitting the comments may request review by the Board of that decision in accordance with the provisions of § 265.3 of the Board’s rules regarding delegation of authority (12 CFR 265.3) by filing a peti tion for review with the Secretary of the Board. as in an installment contract, in a series of payments. 3 Credit disability insurance insures the creditor against loss resulting from a bor rower’s inability to make installment pay ments when he is disabled. This type of in surance is sometimes called “ accident and health”. B y o rd e r o f th e B o a rd o f G o v e rn o rs , D ecem b er 21,1971. [ seal] T ynan S m it h , Secretary of the Board. [FR Doc.71-18090 Piled 1 2-27-71:9:22 am]
@FedFRASER