The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
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