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F

ederal

Rese r v e Ba n k
DALLAS. TEXAS

of

Dallas

75222
C i r c u l a r No. 76-85
J u n e 15, 1976

American Revolution Bicentennial

INTERPRETATION OF REGULATION Y
A B a n k H o ld in g C o m p a n y A u t h o r i z e d to U n d e r w r i t e
C r e d i t I n s u r a n c e M ust P r e s e r v e t h e R e q u i s i t e P u b lic B enefit

TO ALL BANKS, BANK HOLDING COMPANIES,
AND OTHERS CONCERNED IN THE
ELEVENTH FEDERAL RESERVE DISTRICT:
T h e B o a rd of G o v e r n o r s of t h e F e d e r a l R e s e r v e S y s t e m h a s
i s s u e d a n i n t e r p r e t a t i o n of R e g u l a ti o n Y — B a n k H olding C o m p a n i e s —
f in d i n g t h a t a c o n t i n u i n g o b li g a ti o n e x i s t s u p o n all b a n k h o l d i n g c o m p a ­
n ie s a u t h o r i z e d to u n d e r w r i t e c r e d i t i n s u r a n c e to m a in ta in t h e p u b li c
benefit w hich w as c o n s id e re d b y th e B oard w hen th e c o m p a n y 's a p p lic a ­
tio n to e n g a g e in t h e a c t i v i t y w a s a p p r o v e d . T h e i n t e r p r e t a t i o n is
p r i n t e d on t h e r e v e r s e of t h i s c i r c u l a r .
If y o u h a v e a n y q u e s t i o n s r e g a r d i n g t h i s i n t e r p r e t a t i o n , p l e a s e
c o n t a c t G e o r g e H . M cElroy of o u r R e g u l a t i o n s D e p a r t m e n t a t (214)
651-6169.
A d d itio n a l c o p i e s of t h e i n t e r p r e t a t i o n of R e g u l a ti o n Y will b e
f u r n i s h e d u p o n r e q u e s t to t h e S e c r e t a r y ' s Office of t h i s B a n k (214)
651-6267.
S in cerely y o u rs ,
T . W. P la n t

F irst Vice President

This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org)

BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM

BANK HOLDING COMPANIES
IN T E R P R E T A T IO N O F R E G U L A T IO N Y

SECTION 225.135 — A CTING AS U N D ER ­
W RITER (REIN SU RER) FO R CRED IT LIFE
AN D CRED IT ACCIDENT A ND HEALTH
(DISABILITY) IN SURANCE — ASSURING
C O N TIN U IN G PUBLIC BENEFITS
(a) Under the provisions of section 4 (c ) (8) of
the B ank H old ing C om p an y A ct o f 1956, as
amended [“Act”] (12 U.S.C. §1843), a bank hold­
ing company may acquire shares of any company
the activities of which the Board after due notice
and opportunity for hearing has determined (by
order or regulation) to be so closely related to
banking or managing or controlling banks as to
be a proper incident thereto. In making its deter­
mination, the Board is required to consider whether
the performance of a particular activity by an
affiliate of a holding company can reasonably be
expected to produce benefits to the public that
outweigh possible adverse effects.

as one of the public benefits of its application,
that it would offer premium rates below the thenexisting State rates generally being charged by
others, enactment of the legislation would have
had the effect of nullifying the proposed public
benefits unless the applicant were to commit to
lower its rates, concurrently, so as to assure the
continuation of meaningful public benefits. Ac­
cordingly, the Board’s Order granting the applica­
tion made clear that the applicant’s obligation to
offer lower rates was a continuing one.

(d)
While the Board does assure that such a
public benefit exists at the time of approval of a
credit insurance underwriting application, the
Board is also concerned that this public benefit be
maintained on a continuing basis, not only by new
applicants, but by those applicants who have here­
tofore received approval of such applications. In
the event that a State’s insurance regulations were
amended to provide for new premium rate stan­
dards that would establish new, and possibly
(b) On December 11, 1972, pursuant to this
lower, prima facie rates, it is possible that the
authority, the Board amended its Regulation Y,
public benefit involved in a previously approved
by adding section 225.4(a) (10), to authorize as
application could be nullified unless the bank
a permissible activity for bank holding companies
holding company, in light of such new premium
the underwriting of credit life insurance and credit
rate standards, continued to offer this insurance to
accident and health insurance that is directly re­
their customers at reduced rates. The Board be­
lated to extensions of credit by the bank holding
lieves that without such a continuing public
company system. In authorizing this activity, the
benefit, a bank holding company’s continuing to
Board, in a footnote to section 225.4(a) (10) of
engage in the activity of underwriting credit in­
Regulation Y (fn. 7) stated:
surance would be contrary to the requirements of
To assure that engaging in the underwriting of
the Act. In order to avoid such a situation, the
credit life and credit accident and health insur­
Board has interpreted section 4 ( c ) ( 8 ) of the Act
ance can reasonably be expected to be in the
public interest, the Board will only approve appli­
and section 225.4(a) (10) of Regulation Y and
cations in which an applicant demonstrates that
its accompanying footnote as imposing a continu­
approval will benefit the consumer or result in
ing obligation upon all bank holding companies
other public benefits. Normally such a showing
authorized to underwrite such credit insurance
would be made by a projected reduction in rates
pursuant to section 4 ( c ) ( 8 ) of the Act and the
or increase in policy benefits to bank holding
company performance of this service.
Board’s Regulation Y, to maintain a public benefit
(c)
In the course of considering a recent appli­ such as was anticipated and considered by the
cation, the Board became aware of pending legis­
Board at the time of the original approval of each
lation in the applicant’s State that, if adopted,
application, and was envisioned by the Board when
would provide new, lower premium rate standards
this activity was adopted as a permissible non­
applicable to the sale of such credit-related insur­
banking activity under section 4 ( c ) ( 8 ) of the
ance. Because the applicant had already proposed,
Act.1
JIt should be noted that every Board Order granting approval under section 4(c)(8) of the Act contains the
following paragraph:
This determination is subject. . . to the Board’s authority to require such modification or termination of the
activities of a holding company or any of its subsidiaries as the Board finds necessary to assure compliance
with the provisions and purposes of the Act and the Board’s regulations and orders issued thereunder, or to
prevent evasion thereof.
The Board believes that, even apart from this Interpretation, this language preserves the authority of the Board
to require the revisions contemplated in this Interpretation.
5 - 20 -76


Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102