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F

ederal

reserve

bank

DALLAS, TEXAS

of

Dallas

75222
Circular No. 71-28
February 1, 1971

PROPOSED AMENDMENTS TO REGULATION Y
(Bank Holding Companies)

To All Banks
in the Eleventh Federal Reserve District:
The Board of Governors of the Federal Reseifve System
issued for comment on January 25, 1971> proposed amendments to
Regulation Y, "Bank Holding Companies".
The proposed amendments relate to activities that would
be regarded as permissible for bank holding companies, subject to
Board approval in individual cases, under a new law, "Bank Holding
Company Act Amendments of 1970".
Also included in the proposals is a description of the
general procedures to be used by the Board in processing applications
of individual companies for approval to engage in these lines of
business.
At the same time the Board proposed adding new language
to the regulation spelling out the procedures it will use in imple­
menting section U(c)(l2) of the Act. That section permits a company
covered by the 1970 amendments to acquire shares of any company—
subject to conditions prescribed by the Board— until IJanuary 1, 1 9 81 ,
so long as it divests itself by that date of either its bank or its
activities unrelated to banking.
The text of the proposed amendments is attached, together
with the accompanying press release. Interested persons are invited
to submit in writing any relevant views. All comments should be
submitted to the Secretary, Board of Governors of the Federal Reserve
System, Washington, D. C. 20551? to be received not later than
February 2 6 , 1971.
Yours very truly,
P. E. Ooldwell
President
Attachments

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

.

F E D E R A L

9

press

R E S E R V E

release

For immediate release

January 25# 1971

The Board of Governors of the Federal Reserve System today
proposed amendments to its bank holding company regulation as a first
step toward Implementing the "Bank Holding Company Act Amendments of
1970,"

That law extended the Board's regulatory authority over bank

holding companies to those that control only one bank.
The regulatory amendments propose 10 activities to be regarded
as closely related to banking or managing or controlling banks under the
new law, and thus permissible for bank holding companies, subject to
Board approval in individual cases.

The proposal also spells out the

general procedures the Board would follow In processing applications by
individual companies to engage in these lines of business.
Comments on the proposed amendments to Regulation Y (bank hold­
ing companies) should be received by the Board no later than February 26,
Under the Bank Holding Company Act of 1956, only those holding
companies that controlled 25 per cent or more of the voting stock of
two or more banks were required to register with the Federal Reserve
and limit their activities to banking and closely related activities.
In the 1970 amendments Congress expanded the law to cover corporations
and other entities that control only one bank, gave the Board greater
latitude to determine when control exists, and amended other parts of
the Act under which bank holding companies may engage in bank-related
activities.

2

About 1,100 commercial banks with total deposits of $140
billion were believed affiliated with one-bank holding companies as
of April 1, 1970.

As of last December 31, there were 119 registered

bank holding companies--those controlling two or more banks*

Their

subsidiary banks held deposits of more than $70 billion*
One of the regulatory amendments proposed by the Board today
would apply to Section 4(c)(8) of the Act which states, in part, that
a bank holding company may acquire "shares of any company the activities
of which the Board after due notice and opportunity for hearing has de­
termined (by order or regulation) to be so closely related to banking
or managing or controlling banks as to be a proper incident thereto*"
Under the proposal to implement this section of the Act, a
bank holding company could apply to the Board for permission to retain
or acquire an interest in a company that engages solely in one or more
of the following activities:
1*
others.

Making loans for its own account or for the account of

This would include, for example, operations as a mortgage,

finance or factoring company.
2.

Operating as an industrial bank.

3.

Servicing loans.

4.

Acting as fiduciary.

5.

Acting as investment or financial adviser.

6.

Leasing personal property where the initial lease provides

for payment of rentals that will reimburse the lessor for the full pur­
chase price of the property.

-3 -

7.

Acting as insurance agent or broker, principally in

connection with extensions of credit by the holding company or any of
its subsidiaries.
8.

Acting as insurer for the holding company and its sub­

sidiaries or with respect to insurance sold by the holding company or
any of its subsidiaries as agent or broker.
9.

Providing bookkeeping or data processing services for

(a) the holding company and its subsidiaries, (b) other financial in­
stitutions, or (c) others, provided that the value of services performed
by the company for such persons is not a principal portion of the total
value of all such services performed.
10.

Making equity investments in community rehabilitation

and development corporations engaged in providing housing and employ­
ment opportunities for low and moderate income persons.
The Board expects to consider additional activities for in­
clusion in the regulation from time to time and will consider submissions
after the initial regulatory amendments are adopted.
While the proposed regulatory change relating to section 4(c)(8)
is under consideration, the Board does not plan to process applications
filed under that section after December 31, 1970, the effective date of
the new statute, except in unusual and exigent circumstances.

A form to

be used in submitting applications to acquire closely related activities
is now being prepared by the Board.
In outlining proposed procedures to be followed in section
4(c)(8) cases, the Board said notice of any application to acquire an

4-

interest In an existing company would be published i l a newspaper in
t
the affected area and in the Federal Register.

Interested persons

will be given an opportunity to express their views--including by
means of a hearing, where appropriate--on the question whether perfor­
mance of the activity by the holding company "can reasonably be ex­
pected to produce public benefits...that outweigh possible adverse
effects..."
In cases where a holding company files an application to en­
gage in an activity not specified in the regulation as adopted, the
Board would publish notice of the application in the Federal Register
and give interested persons an opportunity to request a hearing not
only on public benefit aspects but also on the question whether the
activity sought is closely related to banking.
Applications to engage in newly launched bank-related activi­
ties that the Board determines by regulation to be permissible would be
deemed approved unless the applicant were notified to the contrary
within 45 days after the Board advised that his application had been
received.

The applicant would be required to publish notice of his

planned activity in the community affected.
At a later time, the Board contemplates consideration of ex­
tending this approval procedure to acquisitions of existing firms under
guidelines designed to identify situations in which such acquisitions
would promote competition.

5-

As proposed, the regulation would not limit the location of
a permissible activity to any State or other geographical area.

Such

limitations might be imposed, however, by regulation or order in
particular cases.
At the same time the Board proposed adding new language to
the regulation spelling out the procedures it will use in implementing
section 4(c)(12) of the Act.

That section permits a company covered by

the 1970 amendments to acquire shares of any company*-subject to con­
ditions prescribed by the Board-*until January 1, 1981, so long as it
divests itself by that date of either its bank or of activities unre­
lated to banking.
Under these procedures, scheduled in the proposal to take
effect as of January 26, 1971, prior approval of the Board would be
required before any company may engage in any activity pursuant to
section 4(c)(12).

If the company filed an irrevocable declaration that

it would cease to be a bank holding company by January 1, 1981, an
application filed by it would be considered approved 45 days after the
company was informed that its request has been received by the Federal
Reserve unless the company was notified otherwise within that time.

If

a company had not filed the declaration, the Board would approve only
those applications in which the company demonstrated that the activities
sought were necessary to enable the more efficient marketing of assets
subject to divestiture.

- 6-

The Board also announced that It is considering limiting the
scope of permissible activities under section 4(c)(5)--which relates
to the acquisition of shares eligible for investment by national banks-to lending or fiduciary activities commenced by a new company.

The

only exception would be where the shares involved are of the kinds and
amounts explicitly eligible for investment by national banks under
Federal law.
Copies of the proposed amendments are attached.
A registration statement to be used by one-bank holding com­
panies is being prepared by the Board and is expected to be issued in
the near future.

Such companies must register with the Federal Reserve

by June 29, which is 180 days after the new legislation was signed into
law.

-0 -

FEDERAL RESERVE SYSTEM
[12 CFR Part 222]

[Reg. Y]
BANK HOLDING COMPANIES
Interests in Nonbanking Activities

By Act of Congress approved December 31, 1970 (Public Law
91*607) the Bank Holding Company Act was expanded to cover companies
that control only one bank«

In conjunction with that expansion Congress

amended section 4(c)(8) of that Act, under which bank holding companies
may acquire interests in nonbanking activities

subject to certain restric­

tions and upon certain conditions.

section as amended,

Under that

the

Board is authorized to promulgate regulations governing acquisition of
companies whose activities are "so closely related to banking or managing
or controlling banks as to be a proper incident thereto."
In determining whether a particular activity

is a proper

incident to banking or managing or controlling banks, the Board is
required to "consider whether its performance by an affiliate of a
holding company can reasonably be expected to produce benefits to the
public, such as greater convenience, increased competition, or gains in
efficiency, that outweigh possible adverse effects, such as undue con­
centration of resources, decreased or unfair competition, conflicts of
interests, or unsound banking practices."

In promulgating regulations

under that section, the Board is authorized to "differentiate between
activities commenced de novo and activities commenced by the acquisition,
in whole or in part, of a going concern".
As its initial implementation of this authority, the Board is
giving consideration to amending § 222.4(a) of Regulation Y to read
as follows:

-

§ 222*4

2 -

Interests In nonbanking organizations.
(а)

Shares of companies whose activities are closely related

to banking or managing or controlling banks.

Any bank holding company may

apply to the Board^ by filing an application with its Federal Reserve Bank,
for permission to retain or acquire an interest in a company that engages
solely in one or more of the following activities:
(1) making, for its own account or for the account of others,
loans such as would be made, for example, by a mortgage, finance, or
factoring company;
(2) operating as an industrial bank;
(3) servicing loans;
(4) acting as fiduciary;
(5) acting as investment or financial adviser, including for
a mortgage investment trust or a real estate investment trust;
(б) leasing personal property, where the initial lease pro­
vides for payment of rentals that will reimburse the lessor for the full
purchase price of the property;
(7) acting as insurance agent or broker principally in connection
with extensions of credit by the holding company or any of its subsidiaries;
(8) acting as insurer for the holding company and its sub­
sidiaries or with respect to insurance sold by the holding company
or any of its subsidiaries as agent or broker;
(9) providing bookkeeping or data processing services for
(1) the holding company and its subsidiaries, (ii) other financial
Institutions or (iii) others, Provided, That the value of services performed
by the company for such persons is not a principal portion of the total
value of all such services performed; or

• 3 •
(10)

making equity investments in community rehabilitation

and development corporations engaged in providing better housing and
employment opportunities for low-income and moderate-income population.

Every application filed under this section shall be accompanied by a
copy of a notice of the proposal published within the preceding 30 days
in a newspaper of general circulation in the communities in which offices
of the company are or are to be located.

The Board will cause to be

published in the Federal Register notice of any application to acquire
an interest in a going concern and will give interested persons an
opportunity to express their views (including where appropriate, by
means of a hearing) on the question whether performance of the activity
proposed by the holding company, under the particular circumstances
involved can reasonably be expected 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, decreased or unfair competition, conflicts of interests, or
unsound banking practices*

Applications to engage in the foregoing

activities de novo shall be deemed to be approved, unless the applicant
is notified to the contrary within 45 days after being advised that the
application has been filed.

Except to the extent otherwise provided in

an order in a particular case, the following conditions shall apply with
respect to every acquisition consummated or activity engaged in on
authority of this section:

(1) performance of services of the company

shall not be subject to any condition which, if imposed by a bank, would
constitute an unlawful tie-in arrangement under section 106 of the Bank
Holding Company Act Amendments of 1970; (2) activities of the company

- 4 -

acquired shall not be altered in any significant respect from those
considered by the Board in making the determination, nor provided at
any location other than those described in the application for such
determination, except upon compliance with the foregoing procedures for
engaging in an activity de novo; and (3) no merger, acquisition of assets,
or assumption of liabilities to which the acquired company is a party
shall be consummated without prior Board approval, if thereafter the
bank holding company will continue to own, directly or indirectly, core
than five per cent of the voting shares of such company or its successor,
*

*

*

*

*

The regulation as proposed does not limit the location at
which permissible activities may be conducted to any State or other
geographical area.

Such limitations might be imposed by regulation,

or by order in particular cases.
In view of the amendment to section 4(c)(8), the Board is
considering limiting the scope of acquisitions by holding companies
that may be made on the basis of section 4(c)(5) of the Act,

Under

that section, holding companies may acquire shares of the kinds and
amounts eligible for investment by national banks under the provisions
of section 5136 of the Revised Statutes,

Under present interpretations

of the Board, a holding company may acquire interests in many of the
types of companies described above if located at a place at which
one of the banks in the holding company may engage in the activities
involved and such activities are otherwise conducted in accordance
with certain other limitations on the activities of national banks*

- 5 -

The amendment to section 4(c)(8) requires the Board to
consider acquisitions by a bank holding company not only from the
standpoint of whether the activities of the company to be acquired
are closely related to banking, but also from the standpoint of
antitrust and related considerations.

Accordingly, the Board believes

that it should exercise its general regulatory authority over holding
companies under section 5 of the Act to limit the scope of permissible
activities under section 4(c)(5) to lending and fiduciary activities
commenced de novo, except where the shares involved are of the kinds
and amounts explicitly eligible for investment by a national bank under
Federal statute law.

Otherwise Congress' purpose in amending section 4(c)(8)

might be substantially nullified.

Any limitations on section 4(c)(5)

would not affect the scope of activities permitted to a banking sub­
sidiary of a bank holding company, but could affect acquisitions of a
nonbanking company by such a bank, since any acquisition by a subsidiary
bank would represent an indirect acquisition by the parent holding company*
To aid in the consideration by the Board of the proposed
regulation, interested persons are invited to submit relevant data,
views, or arguments*

In accordance with the provisions of section 4(c)(8)

interested persons are also given opportunity to request a hearing
on the question whether an activity specified in the proposed amendment
is "so closely related to banking or managing or controlling banks as
to be a proper incident thereto".
The Board anticipates proposing from time to time additional
activities for inclusion in the regulation.

Accordingly, holding

- 6 •

companies or other interested persons may desire to submit proposals
that they wish to have the Board consider for that purpose.

However,

to facilitate prompt implementation of the amended section 4(c)(8),
the Board does not intend to consider such proposals until after
adoption by the Board of its initial regulation.

For similar reasons,

the Board does not anticipate processing until that time applications
for acquisitions on the basis of section 4(c)(8) received by the Reserve
Banks after December 31, 1970, except in unusual and exigent circumstances.
Any such material or requests for hearing 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 26, 1971.

Such material will be made available for inspection

and copying upon request, except as provided in § 261.6(a) of the
Board's Rules Regarding Availability of Information.
By order of the Board of Governors, January 21, 1971.

(Signed)

Kenneth A. Kenyon
Kenneth A. Kenyon
Deputy Secretary

[SEAL]

FEDERAL RESERVE SYSTEM
[12 CFR Fart 222]
[Reg. Y]
BANK HOLDING COMPANIES
Nonbanking Acquisitions by One-Bank Holding Companies

The Board of Governors proposes to add a new paragraph to
section 222.4 of Regulation Y to read as follows:
§ 222.4

Interests in nonbanking organizations.
* * *
(d)

Certain acquisitions by company covered in 1970.

Except

with respect to acquisitions made pursuant to a binding commitment
entered into before January 26, 1971, no bank holding company may
after that date, directly or indirectly, acquire any shares or commence
to engage in any activities on the basis of section 4(c)(12) of the Bank
Holding Company Act, except with prior approval of the Board.

If the

company has filed with the Board an irrevocable declaration that, unless
granted an exemption under section 4(d) of the Act, it will cease to be a
bank holding company by January 1, 1981, requests for such approval shall
be deemed to be approved 45 days after the company is informed that the
request has been received by its Reserve Bank, unless the company is
notified to the contrary within that time.

If the company has not filed

such a declaration, only requests with respect to acquisitions or expansion
of activities that the company demonstrates to the satisfaction of the
Board are necessary to enable it more efficiently to market its assets
subject to divestiture will be approved.
*

*

*

*

*

-

2

Section 4(c)(12) of the Bank Holding Company Act permits a
company covered by the 1970 amendments to retain or acquire any shares
or engage in any activities until January 1, 1981, if the holding
company complies with such conditions as the Board may by regulation
prescribe.

In enacting this exemption, Congress had two types of

companies in mind.

The Board believes that the foregoing system of

prior approvals is necessary to assure that the exemption is used only
by those companies for purposes consistent with the Act.
The two types of companies Congress had in mind in enacting
section 4(c)(12) are (1) a company that elects to divest itself of
its bank before 1981 and thereby cease to be a bank holding company
and (2) a company that will be required to divest a nonbanlcing sub­
sidiary or cease to engage in a nonbanking activity owned or engaged
in on December 31, 1970.
Under the proposal, approval of acquisitions by a company
that elects to divest itself of its bank would normally be granted,
under a simple notification procedure.

Acquisitions by other

companies normally would not be approved, unless the company
demonstrates that the acquisition is necessary to assure that the
company's required divestitures can be made as quickly as possible,
as efficiently as possible, and with as little economic loss to the
divesting company as possible.

3 -

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 26,
1971,

Such material will be made available for Inspection and copying

upon request, except as provided in § 261.6(a) of the Board's Rules
Regarding Availability of Information.
By order of the Board of Governors, January 21, 1971.

(Signed)

Kenneth A. Kenyon
Kenneth A. Kenyon
Deputy Secretary

[SEAL]

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