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F ederal Reserve Bank of Dallas

DALLAS, TEXAS

75222

Circular No. 72-*+
January 7 , 1972

PROPOSED AMENDMENTS TO REGULATION Y
(Activities Closely Related to Banking)
NOTICE OF HEARING REGARDING PROPERTY MANAGEMENT ACTIVITIES

To All Member Banks and Others Concerned
in the Eleventh Federal Reserve Disctrict:
On December 21, 1971? the Board of Governors of the Federal
Reserve System announced proposed amendments to Section 225.*+ of Regu­
lation Y with respect to procedures under which bank holding companies
may engage in activities that the Board has determined to be closely
related to banking under Section U(c)(8 ) of the Bank Holding Company
Act as amended.
The Board also announced suspension of existing simplified
procedures pending consideration of the above.
To aid in the consideration of these matters by the Board,
interested parties are invited to submit relevant data, reviews or
arguments. Any such material should be submitted in writing to the
Secretary, Board of Governors of the Federal Reserve System, Washington
D. C. 20551j to be received not later than February 1, 1972.
Enclosed is a copy of the Board’s press release and proposed
amendments.
In addition, the Board has scheduled a hearing for January 26
1972, concerning the proposal to permit bank holding companies to per­
form property management services. This proposal was originally trans­
mitted under our Circular 71-218, September 13, 1971. Among the issues
that will be explored at the hearing is whether bank holding company
activities in the area of property management should be limited to any
one or more of the following:
(a)

properties held in a fiduciary capacity;

(b)

properties owned by the holding company or its
subsidiaries for conducting its own bank and
bank related operations;

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

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(c)

properties acquired by the holding company or a
subsidiary as a result of a default on a loan;

(d)

farm management;

(e)

properties that are part of a land redevelopment
program;

(f)

management of office buildings and other
business or industrial properties;

(g)

management of single and multi-family
apartment buildings; or

(h)

management of the air rights above, or the
oil and mineral rights below a parcel of land.

The hearing will be held in the Board Room of the Federal Reserve
Building in Washington, D. C. Persons interested in participating in
the hearing by presenting material orally should contact the Regulations
Department for pertinent information. Otherwise, comments on this pro­
posal 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 l6 , 1972.
Yours very truly,
P. E. Coldwell
President
Enclosures

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FEDERAL RESERVE
press

release

For immediate release

December 22, 1971

The Board of Governors of the Federal Reserve System today
proposed further revisions of its rules permitting bank holding com­
panies to make de novo entry into activities 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.
Consequently,

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 in­
surance 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.
transaction.

Such notification is required within 30 days after the
The proposal would require the holding company also to

publish in a newspaper in the communities to be served notice of such
an acquisition within 30 days of the transaction.

Under the proposal,

bank holding companies may acquire small finance companies that make

(over)

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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.
A copy of the proposal is attached.
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FEDERAL RESERVE SYSTEM
[12 CFR Part 225]
[Reg. Y]
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 activities are closely
related to banking may be made "by order or regulation" and that the
Board may differentiate between activities commenced de novo and
activities commenced by the acquisition of a going concern.
Pursuant to these provisions and the provisions of § 5
of the Act, the Board initiated a rulemaking proceeding.

Notice of

the proposed rulemaking was published in the Federal Register 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
interested 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

activity to be engaged in de n o v o , a holding 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

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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 contrary within that time or
unless permitted to consummate at an earlier date.
tion of a going concern is involved,

Where an acquisi­

the holding company must file a

formal application and await Board consideration of the public interest
aspects of the transaction, namely, a Board determination whether the
proposed acquisition 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.
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 subsidiary 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 activities authorized
under § 4(c)(8) of the Act.

The proposals herein are based on the

oral and written presentations made in connection with the Board's
rulemaking proceeding (including the hearings on April 14, April 16,
and May 12) and the Board's experience under the regulatory provisions
that resulted from that rulemaking proceeding.

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In view of the extensive consideration given to the
public interest factors of holding companies engaging in bank related
activities, the Board believes that, with respect to the designated
activities, de novo entry by a bank holding company can reasonably
be expected to produce benefits to the public and that such benefits
can reasonably be expected to outweigh possible adverse effects within
the meaning of § 4(c)(3) 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 oppor­
tunity for hearing, is warranted.

Adoption of the proposal herein

would mean that de novo entry into any of the activities specified in
§ 225.4(a)

(except § 2 2 5 .4(a)(9)(iii) (b)) may be consummated under

the proposed procedures 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 par­
ticular matter so warrant.
In connection with finance companies, the proposal incor­
porates the simplified procedures which the Board adopted on August 19,
but with the following modifications:
(a) The holding company must publish notice of the acquisi­
tion within 30 days after consummation of the transaction, and
(b) A finance company whose insurance involvement is limited
to making available to its borrowers (at each borrower's option) credit
life and/or credit disability insurance covering the balance on the

(over)

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borrower's debt, through a group insurance policy in which the finance
company is the assured policyholder, may be acquired under the proposed
simplified procedures.
With respect to the shifting of activities to a collateral
affiliate or a parent holding company, the proposal makes no substantial
change in the current provisions of subparagraph 225.4(b)(3)(i)(b).
Pending consideration of the proposals 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, viewg, or argu­
ments.

Any such material should be submitted in writing to the Secre­

tary, 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 copying upon request,
except as provided in § 261.6(a) of the Board's Rules Regarding Avail­
ability of Information.
Under the proposal, § 225.4 of Regulation Y would be amended
as follows:
1.

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 replaced by the following sentences:
S 225.4

Nonbanking activities.
(a)

controlling b a n k s .

Activities closely related to banking or managing or
* * *

With respect to the activities designated

below, the Board has determined that de novo entry by a bank holding

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company can reasonably be expected to produce benefits to the public
and that such benefits can reasonably be expected to outweigh possible
adverse effects within the meaning of § 4(c)(8) of the Act except
that, with respect to the activities in § 2 2 5 .4(a)(9)(iii) (b) , the
Board has determined only that the activities are closely related to
banking.

Accordingly, the procedures of § 225.4(b)(1) 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 acti­
vities designated below are closely related to banking but the bank
holding company must await a Board determination whether the proposed
acquisition can reasonably be expected to produce benefits to the
public that outweigh possible adverse effects within the meaning of
§ 4(c)(8)

of the Act.

Accordingly, the procedures of § 225.4(b)(2)

are prescribed for the acquisition of a
2.

going concern.

Section 225.4(b)(1) and (3) would read as

(b) (1) De novo e nt r y .

follows:

A bank holding company may engage

de novo (or continue to engage in an activity earlier commenced de novo)
directly or indirectly, solely in activities described in paragraph (a)
of this section (except insurance agency activities under subparagraph
(a)(9)(iii)(b)) 45 days after the holding company has informed its
Reserve Bank of its proposal to engage in such activity, unless the
company is notified to the contrary within that time or is permitted
to consummate the transaction at an earlier date.

Every such notifi­

cation shall be accompanied by a copy of a publication (in substantially
the same form as F.R. Y-4A) of the proposal to engage in the activities

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published within the preceding 30 days in a newspaper(s) of general cir­
culation 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 effectuate the pur­

poses of the Act, the Board may require suspension or discontinuation 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.
that (with the exception noted above)

The Board has determined

the activities described in

paragraph (a) 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 benefits to the public that outweigh
possible adverse effects within the meaning of § 4(c)(8) of the Act.
Accordingly, unless the Board at its discretion affords interested
persons an opportunity to present further oral or written views or data
or orders a hearing, a transaction may be consummated under this sub­
paragraph without any further notice or opportunity for hearing.

If

adverse comments of a substantive nature are received by the Reserve
Bank within 30 days after the company has published its proposaljL/ or,
if it otherwise appears appropriate in a particular case, the Reserve
Bank may inform the company that (i) the proposal shall not be consummated

1/ If a Reserve Bank decides that adverse comments are not of a sub­
stantive 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 Bo a r d ’s Rules Regarding Delegation of Authority (12 CFR
265.3) by filing a petition for review with the Secretary of the Board.

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until specifically authorized by the Reserve Bank or by the Board
or

(ii) the proposal should be processed in accordance with the pro­

cedures of subparagraph (2) of this paragraph (b).

A bank holding

company may engage de novo in insurance agency activities under sub­
paragraph (a)(9)(iii)(b) only in accordance with the procedures of
subparagraph (2) of this paragraph (b) .
*

*

*

(3) Simplified procedures.

The procedures of subparagraphs

(1) and (2) of this paragraph (b) shall not apply with respect to a
holding company or a subsidiary thereof engaging in the following:
(i)

making, acquiring, or servicing loans or other exten­

sions of credit for personal, family, or household purposes, P ro v i d e d .
That the commencement or expansion of such activity does not involve
an acquisition of assets of $10 million or more

(or the acquisition

of shares of a company having such assets) and incidental insurance
activities are limited to the making available to a borrower, at the
borrower's option, credit life insurance^/ and/or credit disability
i n s u r a n c e V on a group basis under which the creditor is issued a group
master policy as a policyholder and the borrower receives a certificate

2/ Credit life insurance insures the creditor against loss in case of
death of a borrower.
The amount of insurance may be constant or d e ­
creasing depending upon whether the loan is to be repaid in one payment
or, as in an instalment contract, in a series of payments.
3/ Credit disability insurance insures the creditor against loss re­
sulting from a borrower's inability to make instalment payments when
he is disabled.
This type of insurance is sometimes called "accident
and health".

(over)

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of insurance evidencing his coverage and stating the principal pro­
visions of the group policy ; except that (1) no holding company may
acquire more than $50 million in assets in any calendar year under
the provisions of this subdivision 2 2 5 .4(b) (3)(i) , (2) within 30 days
after the consummation of such an acquisition, the holding company
shall inform its Reserve Bank of the acquisition, and every such
notification shall be accompanied by a copy of a notice of the acqui­
sition published within the preceding 30 days in a newspaper(s) of
general circulation in the communities to be served, and ( 3 ) whenever
necessary to effectuate the purposes of the Acs, the Board may re­
quire suspension or discontinuation of any action taken, or divesti­
ture of any acquisition made, on authority of this provision, and
may withdraw such authority with respect to any particular holding
company;
(ii)

engaging in activities described in § 225.4(a)

shifted from a bank in the holding company system and were engaged
in by the bank either de novo or as a result of a merger transaction
described in and approved by a Federal supervisory agency pursuant to
section 18(c) of the Federal Deposit Insurance Act

(12 U.S.C. 1828(c)),

45 days after the holding company has informed its Reserve Eank of its
proposal to shift such activity, unless the company is notified to the
contrary within that time or is permitted to consummate the transaction
at an earlier date.

Such notification shall provide information

that are

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as to the general nature and extent of the activities to be shifted
and the locations involved.

Whenever necessary to effectuate the pur­

poses of the Act, the Board may require suspension or discontinuation
of any action taken, or divestiture of any interest acquired, on
authority of this provision, and may withdraw such authority with
respect to any particular holding company.
By order of the Board of Governors, December 21, 1971.

(signed) Tynan Smith

Tynan Smith
Secretary of the Board

[SEAL]

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