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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) -2- (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 k J 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) - 2- 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. - 0- 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 (over) - 2 - 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. - 3 - 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) - 4 - 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 - 5 - 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 (over) - 6 - 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. - 7 - 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) - 8 - 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 - 9 - 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]