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l l★K

Federal Reserve Bank
of Dallas

DALLAS, TEXAS
75265-5906

September 11, 2003
Notice 03-51

TO: The Chief Executive Officer of each
financial institution and others concerned
in the Eleventh Federal Reserve District
SUBJECT
Proposals to Adopt an Exception to
and an Interpretation of the Anti-Tying Restrictions
DETAILS
The Board of Governors proposes to adopt an exception to the anti-tying restrictions
of Section 106 of the Bank Holding Company Act Amendments of 1970 (BHC Act) in order to
equalize the treatment of financial subsidiaries of banks under Section 106. The proposed exception provides that a financial subsidiary of a state nonmember bank shall be treated as an affiliate
of the bank, and not as a subsidiary of the bank, for purposes of Section 106. The anti-tying
restrictions of Section 106 generally apply to subsidiaries, but not affiliates, of banks. Financial
subsidiaries of national and state member banks already are treated as affiliates (and not subsidiaries) of the parent bank for purposes of Section 106.
The Board also proposes to adopt an interpretation of the anti-tying restrictions of
Section 106 of the BHC Act and related supervisory guidance. The interpretation describes the
scope and purposes of Section 106, the elements of a tying arrangement prohibited by Section
106, and the statutory and regulatory exceptions to the prohibitions of Section 106. The interpretation also includes examples of the types of conduct, actions, and arrangements by banks that
are prohibited and permissible under Section 106.
The Board believes that adoption of the interpretation will assist banks and their
customers in understanding the scope of the anti-tying restrictions of the statute. The related
supervisory guidance discusses the types of internal controls that should help banks comply with
Section 106. The proposed interpretation and guidance reflect the principles that the Board will
apply in enforcing Section 106 and conducting anti-tying reviews at banking organizations.

For additional copies, bankers and others are encouraged to use one of the following toll-free numbers in contacting the Federal
Reserve Bank of Dallas: Dallas Office (800) 333-4460; El Paso Branch (800) 846-6858; Houston Branch Intrastate (800)
392-4162, Interstate (800) 221-0363; San Antonio Branch Intrastate (800) 292-5810.

-2The Board must receive comments on both proposals by September 30, 2003. Please
address comments to Jennifer J. Johnson, Secretary, Board of Governors of the Federal Reserve
System, 20th Street and Constitution Avenue, N.W., Washington, DC 20551. However, because
paper mail in the Washington area and at the Board is subject to delay, please consider submitting your comments by e-mail to regs.comments@federalreserve.gov.
All comments regarding the proposed exception to the anti-tying restrictions should
refer to Docket No. R-1159. All comments regarding the proposed interpretation of the anti-tying
restrictions should refer to Docket No. OP-1158.
ATTACHMENTS
Copies of the Board’s notices as they appear on pages 51938–39 and pages 52024–
35, Vol. 68, No. 168 of the Federal Register dated August 29, 2003, are attached.
MORE INFORMATION
For more information, please contact Sharon Sweeney, Legal Department, at (214)
922-5101. Paper copies of this notice or previous Federal Reserve Bank notices can be printed
from our web site at www.dallasfed.org/banking/notices/index.html.

51938

Federal Register / Vol. 68, No. 168 / Friday, August 29, 2003 / Proposed Rules
ACTION: Proposed rule with request for
public comment.
SUMMARY: The Board proposes to adopt
an exception to the anti-tying
restrictions of section 106 of the Bank
Holding Company Act Amendments of
1970 in order to equalize the treatment
of financial subsidiaries of banks under
section 106. The proposed exception
provides that a financial subsidiary of a
state nonmember bank shall be treated
as an affiliate of the bank, and not as a
subsidiary of the bank, for purposes of
section 106. The anti-tying restrictions
of section 106 generally apply to
subsidiaries, but not affiliates, of banks.
Financial subsidiaries of national and
state member banks already are treated
as affiliates (and not subsidiaries) of the
parent bank for purposes of section 106.
DATES: Comments must be received on
or before September 30, 2003.
ADDRESSES: Comments should refer to
Docket No. R–1159 and may be mailed
to Ms. Jennifer J. Johnson, Secretary,
Board of Governors of the Federal
Reserve System, 20th Street and
Constitution Avenue, NW, Washington,
DC 20551. However, because paper mail
in the Washington area and at the Board
of Governors is subject to delay, please
consider submitting your comments by
e-mail to
regs.comments@federalreserve.gov or
faxing them to the Office of the
Secretary at 202–452–3819 or 202–452–
3102. Members of the public may
inspect comments in Room MP–500 of
the Martin Building between 9 a.m. and
5 p.m. on weekdays pursuant to
§ 261.12, except as provided in § 261.14,
of the Board’s Rules Regarding
Availability of Information (12 CFR
261.12 and 261.14).
FOR FURTHER INFORMATION CONTACT:
Kieran J. Fallon, Senior Counsel (202–
452–5270), Mark E. Van Der Weide,
Counsel (202–452–2263), or Andrew S.
Baer, Counsel (202–452–2246), Legal
Division, Board of Governors of the
Federal Reserve System, 20th Street and
Constitution Avenue, NW, Washington,
DC 20551. For users of
Telecommunications Device for the Deaf
(TDD) only, contact 202–263–4869.
SUPPLEMENTARY INFORMATION:

FEDERAL RESERVE SYSTEM

Background

12 CFR Part 225

Section 106 of the Bank Holding
Company Act Amendments of 1970
(section 106) generally prohibits a bank
from conditioning the availability or
price of one product or service (the
‘‘desired product’’) on a requirement
that the customer obtain another
product or service (the ‘‘tied product’’)
from the bank or an affiliate of the

[Regulation Y; Docket No. R–1159]

Bank Holding Companies and Change
in Bank Control: Exception to AntiTying Restrictions
AGENCY: Board of Governors of the
Federal Reserve System.

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bank.1 For example, the statute
prohibits a bank from requiring that a
prospective borrower purchase
homeowners insurance from the bank or
an affiliate of the bank in order to obtain
a mortgage loan from the bank. Section
106 also contains several exceptions to
its general prohibitions and authorizes
the Board to grant any additional
exception from the statute’s
prohibitions, by regulation or order, that
the Board determines ‘‘will not be
contrary to the purposes’’ of the statute.2
Section 106 applies only to tying
arrangements imposed by a bank, and
generally does not apply to tying
arrangements imposed by a nonbank
affiliate of a bank. Because a subsidiary
of a bank is considered to be part of the
bank for most supervisory and
regulatory purposes under the Federal
banking laws, the restrictions in section
106 generally apply to tying
arrangements imposed by a subsidiary
of a bank in the same manner that the
statute applies to the parent bank itself.
Thus, a subsidiary of a bank generally
is prohibited from conditioning the
availability or price of a product on the
customer’s purchase of another product
from the subsidiary, its parent bank, or
any affiliate of its parent bank.
The Board is publishing elsewhere in
today’s Federal Register a proposed
interpretation of section 106 and related
supervisory guidance with a request for
public comment. The interpretation
includes an extensive discussion of the
scope and restrictions of section 106, as
well as the statutory and regulatory
exceptions to the statute’s prohibitions.
Proposed Rule
Federal law authorizes national and
state member banks that meet certain
conditions to own or control a financial
subsidiary.3 A financial subsidiary of a
national or state member bank may
engage in certain activities—such as
underwriting and dealing in corporate
debt and equity securities—that the
parent bank is not permitted to conduct
directly. Unlike other subsidiaries, a
financial subsidiary of a national or
state member bank is treated as an
1 12 U.S.C. 1972(1)(A) and (B). Section 106 also
prohibits a bank from conditioning the availability
or price of one product on a requirement that the
customer (i) provide another product to the bank or
an affiliate of the bank; or (ii) not obtain another
product from a competitor of the bank or from a
competitor of an affiliate of the bank. 12 U.S.C.
1972(1)(C), (D), and (E).
2 12 U.S.C. 1972(1).
3 See 12 U.S.C. 24a, 335. In order to be eligible
to own or control a financial subsidiary, the
national or state member bank and its depository
institution affiliates must satisfy certain capital,
managerial, Community Reinvestment Act (12
U.S.C. 2901 et seq.), and other requirements.

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Federal Register / Vol. 68, No. 168 / Friday, August 29, 2003 / Proposed Rules
affiliate of the bank, and not as a
subsidiary of the bank, for purposes of
section 106.4 Accordingly, a financial
subsidiary of a national or state member
bank is not subject to the anti-tying
restrictions of section 106. However,
tying arrangements imposed by a
financial subsidiary of a national or
state member bank, like tying
arrangements imposed by any other
affiliate of a bank, remain subject to the
tying restrictions contained in the
Federal antitrust laws.5
Federal law also authorizes state
nonmember banks that meet certain
eligibility requirements to own or
control a financial subsidiary.6 The
Board proposes to adopt an exception
under section 106 that would allow a
financial subsidiary of a state
nonmember bank to be treated as an
affiliate of the parent bank, and not as
a subsidiary of the bank, for purposes of
section 106. The Board believes that
providing equal treatment of all
financial subsidiaries of banks under
section 106 is appropriate to ensure
competitive equality and would not be
contrary to the purposes of section 106.7
The Board invites comment on all
aspects of the proposed exception.
Plain Language
Section 722 of the Gramm-LeachBliley Act requires the Board to use
‘‘plain language’’ in all proposed and
final rules published after January 1,
2000.8 In light of this requirement, the
Board has sought to present the
proposed rule in a simple and
straightforward manner. The Board
invites comment on whether the Board
could take additional steps to make the
proposed rule easier to understand.
Regulatory Flexibility Act
In accordance with section 3(a) of the
Regulatory Flexibility Act (5 U.S.C.
603(a)), the Board must publish an
initial regulatory flexibility analysis
with this proposed rule. The proposed
rule, if adopted, would exempt financial
subsidiaries of state nonmember banks
4 See

12 U.S.C. 1971; 12 CFR 208.73(e).
U.S.C. 1 et seq. (Sherman Act); 15 U.S.C. 12
et seq. (Clayton Act).
6 See 12 U.S.C. 1831w.
7 As noted above, section 208.73(e) of the Board’s
Regulation H currently provides that a financial
subsidiary of a state member bank is treated as an
affiliate (and not a subsidiary) of the bank for
purposes of section 106. 12 CFR 208.73(e). In order
to consolidate the regulatory provisions relating to
the treatment of financial subsidiaries of state banks
under section 106, the Board also is proposing to
include in section 225.7 of Regulation Y the
provision that states that a financial subsidiary of
a state member bank is treated as an affiliate of the
bank for purposes of section 106.
8 Pub. L. 106–102, 113 Stat. 1338 (1999), codified
at 12 U.S.C. 4809.
5 15

from the anti-tying restrictions in
section 106 of the Bank Holding
Company Act Amendments of 1970 (12
U.S.C. 1972). A description of the
reasons for the Board’s decision to issue
the proposed rule and a statement of the
objectives of, and legal basis for, the
proposed rule are contained in the
supplementary information provided
above.
The proposed rule would apply to all
state nonmember banks regardless of
their size. The proposed rule would
exempt any financial subsidiary of a
state nonmember bank (including a
small state nonmember bank) from the
restrictions of section 106 and, thus,
should reduce the regulatory burden
imposed on state nonmember banks
with financial subsidiaries. The
proposed rule also would equalize the
treatment of financial subsidiaries of
national and state banks under section
106 and, thus, promotes competitive
equality. The Board specifically seeks
comment on the likely burden the
proposed rule would have on banks,
especially small banks.
Paperwork Reduction Act
In accordance with the Paperwork
Reduction Act of 1995 (44 U.S.C. 3506;
5 CFR 1320 Appendix A.1), the Board
has reviewed the proposed rule under
authority delegated to the Board by the
Office of Management and Budget. The
proposed rule contains no collections of
information pursuant to the Paperwork
Reduction Act.
List of Subjects in 12 CFR Part 225
Administrative practice and
procedures, Banks, Banking, Federal
Reserve System, Holding companies,
Reporting and recordkeeping
requirements, Securities.
Authority and Issuance
For the reasons set forth in the
preamble, the Board proposes to amend
12 CFR part 225 as follows:
PART 225—BANK HOLDING
COMPANIES AND CHANGE IN BANK
CONTROL (REGULATION Y)
1. The authority citation for part 225
continues to read as follows:
Authority: 12 U.S.C. 1817(j)(13), 1818,
1828(o), 1831i, 1831p–1, 1843(c)(8), 1843(k),
1844(b), 1972(1), 3106, 3108, 3310, 3331–
3351, 3907, and 3909; and 15 U.S.C. 6801
and 6805.

2. Section 225.7 is amended as
follows:
a. By revising the introductory
sentence of paragraph (b);
b. By redesignating paragraphs (c)
through (e) as paragraphs (d) through (f),
respectively; and

51939

c. By adding a new paragraph (c).
§ 225.7

Exceptions to tying restrictions.

*

*
*
*
*
(b) Exceptions to statute. Subject to
the limitations of paragraph (d) of this
section, a bank may—
*
*
*
*
*
(c) Financial subsidiaries of state
banks. A financial subsidiary of a state
member bank held in accordance with
section 9 of the Federal Reserve Act (12
U.S.C. 335) and a financial subsidiary of
a state nonmember bank held in
accordance with section 46 of the
Federal Deposit Insurance Act (12
U.S.C. 1831w) shall be deemed to be a
subsidiary of a bank holding company
of the bank and an affiliate of the bank,
and not a subsidiary of the bank, for
purposes of section 106 and this section.
*
*
*
*
*
By order of the Board of Governors of the
Federal Reserve System, August 25, 2003.
Jennifer J. Johnson,
Secretary of the Board.
[FR Doc. 03–22090 Filed 8–28–03; 8:45 am]
BILLING CODE 6210–02–P

52024

Federal Register / Vol. 68, No. 168 / Friday, August 29, 2003 / Notices

FEDERAL RESERVE SYSTEM
[Docket No. OP–1158]

Anti-Tying Restrictions of Section 106
of the Bank Holding Company Act
Amendments of 1970
AGENCY: Board of Governors of the
Federal Reserve System.
ACTION: Proposed interpretation and
supervisory guidance with request for
public comment.
SUMMARY: The Board proposes to adopt
an interpretation of the anti-tying
restrictions of section 106 of the Bank
Holding Company Act Amendments of
1970 and related supervisory guidance.
The interpretation describes the scope
and purposes of section 106, the
elements of a tying arrangement
prohibited by section 106, and the
statutory and regulatory exceptions to
the prohibitions of section 106. The
interpretation also includes examples of
the types of conduct, actions and
arrangements by banks that are
prohibited and permissible under
section 106. The Board believes that
adoption of the interpretation will assist
banks and their customers in
understanding the scope of the antitying restrictions of the statute. The
related supervisory guidance discusses
the types of internal controls that
should help banks comply with section
106. The proposed interpretation and
guidance reflect the principles that the
Board will apply in enforcing section
106 and conducting anti-tying reviews
at banking organizations.
DATES: Comments must be received on
or before September 30, 2003.
ADDRESSES: Comments should refer to
Docket No. OP–1158 and may be mailed
to Ms. Jennifer J. Johnson, Secretary,
Board of Governors of the Federal
Reserve System, 20th Street and
Constitution Avenue, NW., Washington,
DC 20551. However, because paper mail
in the Washington area and at the Board
of Governors is subject to delay, please
consider submitting your comments by
e-mail to
regs.comments@federalreserve.gov or
faxing them to the Office of the
Secretary at 202–452–3819 or 202–452–
3102. Members of the public may
inspect comments in Room MP–500 of
the Martin Building between 9 a.m. and
5 p.m. on weekdays pursuant to section
261.12, except as provided in section
261.14, of the Board’s Rules Regarding
Availability of Information (12 CFR
261.12 and 261.14).
FOR FURTHER INFORMATION CONTACT:
Scott G. Alvarez, Associate General
Counsel (202–452–3583), Kieran J.

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17:14 Aug 28, 2003

Jkt 200001

Fallon, Senior Counsel (202–452–5270),
Mark E. Van Der Weide, Counsel (202–
452–2263), or Andrew S. Baer, Counsel
(202–452–2246), Legal Division; or
Michael G. Martinson, Associate
Director (202–452–3640), or Michael J.
Schoenfeld, Senior Supervisory
Financial Analyst (202–452–2836),
Division of Banking Supervision and
Regulation; Board of Governors of the
Federal Reserve System, 20th Street and
Constitution Avenue, NW., Washington,
DC 20551. For users of
Telecommunications Device for the Deaf
(TDD) only, contact 202–263–4869.
SUPPLEMENTARY INFORMATION:
Background
Section 106 of the Bank Holding
Company Act Amendments of 1970
(section 106) generally prohibits a bank
from conditioning the availability or
price of one product on a requirement
that the customer also obtain another
product from the bank or an affiliate of
the bank.1 Thus, for example, the statute
prohibits a bank from conditioning the
availability of a loan from the bank (or
a discount on the loan) on the
requirement that the customer also
purchase an insurance product from the
bank or an affiliate.2
Congress adopted section 106 in 1970
at the same time that it expanded the
ability of bank holding companies to
engage in nonbanking activities under
section 4(c)(8) of the Bank Holding
Company Act (BHC Act).3 Congress
expressed concern that banks might use
their ability to offer bank products—
credit in particular—in a coercive
manner to gain a competitive advantage
in markets for nonbanking products and
services (such as insurance sales).4
Congress therefore decided to impose
the special anti-tying restrictions in
section 106 on banks.
Section 106 does not apply to the
nonbank affiliates of a bank or other
nonbank entities.5 The nonbank
1 12 U.S.C. 1972. Although part of the Bank
Holding Company Act Amendments of 1970,
section 106 applies to a bank whether or not the
bank is owned or controlled by a bank holding
company.
2 Section 106 also generally prohibits a bank from
conditioning the availability or price of one product
on a requirement that the customer (i) provide
another product to the bank or an affiliate of the
bank or (ii) not obtain another product from a
competitor of the bank or a competitor of an affiliate
of the bank. 12 U.S.C. 1972(1)(C), (D) and (E). The
arrangements prohibited by section 106 are
collectively referred to as ‘‘tying arrangements.’’
3 12 U.S.C. 1843(c)(8).
4 See S. Rep. No. 1084, 91st Cong., 2d Sess.
(1970).
5 In 1971, the Board by regulation extended the
anti-tying restrictions of section 106 to bank
holding companies and their nonbank subsidiaries.
In 1997, however, the Board rescinded this

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affiliates of banks, as well as banks
themselves, however, are subject to the
anti-tying restrictions contained in the
Federal antitrust laws (the Sherman and
Clayton Acts).6
Although section 106 prohibits banks
from imposing certain types of tying
arrangements on their customers, the
statute also expressly permits banks to
engage in other forms of tying and
authorizes the Board to grant additional
exceptions to the statute’s restrictions
by regulation or order. For example,
section 106 and the Board’s regulations
expressly permit a bank to condition the
availability or price of a product or
service on a requirement that the
customer also obtain a ‘‘loan, discount,
deposit, or trust service’’ (a ‘‘traditional
bank product’’) from the bank or an
affiliate of the bank.7
Although the general prohibitions of
section 106 can be stated fairly simply,
determining whether a violation of the
statute has occurred often requires a
careful analysis of the facts and
circumstances associated with the
particular transaction (or proposed
transaction) at issue. For example, as
noted above, several important
exceptions exist to the statute’s
prohibitions. Moreover, the actions,
statements and policies of the bank
involved in the particular transaction
often play an important role in
determining whether the bank has
violated section 106.
The Federal banking agencies have
long required that banking organizations
establish and maintain appropriate
policies and procedures to ensure
compliance with the anti-tying
restrictions of section 106,8 and the
agencies monitor these policies and
procedures through the supervisory
process. For example, the anti-tying
policies and procedures of bank holding
companies and state member banks are
reviewed and evaluated by Federal
Reserve examiners as part of the
compliance examinations of these
organizations. In addition, examiners
may conduct more targeted
examinations of the marketing
programs, anti-tying training materials,
internal reports and internal tying
investigations of a banking organization.
Over the past several months, Board
staff also has met with customers of
regulatory extension of the statute. See 62 FR 9290,
Feb. 28, 1997.
6 15 U.S.C. 1 et seq.; 15 U.S.C. 12 et seq.
7 See 12 U.S.C. 1972(1)(A); 12 CFR 225.7(b)(1).
8 See, e.g., Federal Reserve Board Bank Holding
Company Supervision Manual 3500.0; Office of the
Comptroller of the Currency Insurance Activities
Handbook, Federal Prohibitions on Tying (June
2002); Office of the Comptroller of the Currency
Bulletin 95–20 (April 14, 1995).

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Federal Register / Vol. 68, No. 168 / Friday, August 29, 2003 / Notices
banks, professional associations
representing customers of banks,
competitors of banks, and banking
organizations and their trade
associations concerning the scope,
effectiveness and impact of the antitying restrictions of section 106 and
related issues. In addition, the Board
has received inquiries from banks,
competitors of banks, customers of
banks and a member of Congress
regarding section 106 and its
application to specific situations.
In light of these events, the
complexities associated with section
106, and the increasing importance of
section 106 in the wake of the GrammLeach-Bliley Act,9 the Board believes it
would be useful and appropriate at this
time to publish, and seek public
comment on, an official interpretation of
section 106 and supervisory guidance
for banks concerning section 106. In
supervising compliance by banking
organizations with section 106 and this
interpretation, the Board will take into
account whether the manner of applying
section 106 or the Board’s interpretation
in the context of a particular practice
was unclear before this document was
issued.
Outline of the Proposed Interpretation
and Supervisory Guidance
The proposed statement explains the
Board’s interpretation of section 106.
The statement also sets forth the
principles that the Board will apply in
enforcing the statute and in assessing
the anti-tying policies, procedures and
systems of banks during the supervisory
process. The Board has consulted
extensively with the Office of the
Comptroller of the Currency in
developing the interpretation and
supervisory guidance.
The statement is divided into several
parts. The first six parts (Parts I–VI) are
a proposed Board interpretation of
section 106. These parts describe the
types of bank conduct that are
prohibited by section 106 (Part II),
explain the essential elements of a tying
arrangement prohibited by section 106
(Part III), and describe the statutory and
regulatory exceptions to the anti-tying
prohibitions of section 106 (Part IV).
The remainder of these six parts provide
an introduction to the statement (Part I)
and discuss the scope of the terms
‘‘bank’’ and ‘‘affiliate’’ for purposes of
section 106 and the statement (Parts V
and VI).
The final part of the statement (Part
VII) discusses the policies, procedures
and systems that should help banks
ensure and monitor their compliance

with section 106. This section is
guidance that the Board proposes to
follow in its supervision of banking
organizations going forward.
The interpretation discusses a wide
variety of issues related to section 106.
Among other matters, the Board’s
interpretation addresses (i) the scope of
the statutory and regulatory traditional
bank product exceptions, including the
types of products that would qualify as
a traditional bank product (i.e., a ‘‘loan,
discount, deposit, or trust service’’) for
purposes of the exceptions; (ii) the
permissibility under section 106 of
relationship banking programs that
involve both traditional bank products
and other products (referred to in the
interpretation and guidance as ‘‘mixedproduct arrangements’’); and (iii)
whether tying arrangements voluntarily
sought or demanded by a customer are
permissible under section 106. The
interpretation also includes examples of
the types of conduct, actions and
arrangements by banks that are
prohibited and permissible under
section 106. These examples, which are
included for illustrative purposes, are
based solely on the facts stated in the
example. Because the determination of
whether a violation of section 106 has
occurred is fact specific, these examples
by themselves do not represent a finding
that any past action by a particular bank
violated the statute.
The Board seeks comment on all
aspects of the proposed interpretation
and supervisory guidance. In addition,
the Board asks commenters to identify
and discuss any section 106 interpretive
or compliance issues that are not
addressed in the statement but that, in
the view of commenters, would be of
sufficient importance and general
interest to address either in the Board’s
interpretation or supervisory guidance.
The proposed interpretation and
related supervisory guidance follows.
Interpretation of the Anti-tying
Restrictions of Section 106 of the Bank
Holding Company Act Amendments of
1970 and Related Supervisory
Guidance
I. Introduction
The anti-tying provisions of section
106 of the Bank Holding Company Act
Amendments of 1970 (‘‘section 106’’ or
the ‘‘anti-tying prohibitions’’) prohibit
certain forms of tying by banks.10 The
statute is intended to prevent banks
from using their ability to offer bank
products, credit in particular, in a
coercive manner to gain a competitive
advantage in markets for other products

and services. Although section 106 sets
forth an absolute bar to certain forms of
tying by banks, the statute permits other
types of tying and permits the Board to
grant additional exceptions to its
prohibitions. Violations of section 106
may be addressed by the bank’s
appropriate Federal banking agency
through an enforcement action, by the
Department of Justice through a request
for an injunction, or by a customer or
other person injured by the illegal tying
arrangement through a request for an
injunction or an action for damages.11
This statement explains the Board’s
interpretation of the prohibitions of, and
statutory and regulatory exceptions to,
section 106. This statement also reflects
the principles and factors that the Board
will apply in conducting anti-tying
reviews at banking organizations and
enforcing section 106. In addition, Part
VII of this statement includes
supervisory guidance outlining the
types of anti-tying policies, procedures
and systems that the Board believes will
help banks ensure compliance with
section 106.
Banks and their affiliates also are
subject to the tying restrictions
contained in the Sherman Act and the
Clayton Act that apply to all persons
acting in interstate commerce.12 This
statement does not address the
applicability of these general antitrust
laws, which are within the jurisdiction
of the Department of Justice. This
statement also does not address the
treatment of arrangements involving
customers and banks and their affiliates
under other Federal or state laws,
including sections 23A and 23B of the
Federal Reserve Act (12 U.S.C. 371c,
371c–1) and the Real Estate Settlement
Procedures Act (12 U.S.C. 2601 et seq.).
II. What Conduct Is Prohibited by
Section 106?
Section 106 prohibits a bank from
extending credit, leasing or selling any
property or furnishing any service, or
fixing or varying the consideration for
any of the foregoing, on the condition or
requirement that the customer do any of
the following:
1. Obtain some additional credit,
property or service from the bank, other
than a loan, discount, deposit or trust
service;
2. Provide some additional credit,
property or service to the bank, other
than those related to and usually
provided in connection with a loan,
discount, deposit or trust service;
11 12

9 Pub.

L. No. 106–102, 113 Stat. 1338 (1999).

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3. Obtain from or provide to an
affiliate of the bank some additional
credit, property or service; or
4. Not obtain some additional credit,
property or service from a competitor of
the bank or of an affiliate of the bank,
unless the condition is reasonably
imposed in a credit transaction to
ensure the soundness of the credit.13
As this list illustrates, section 106
prohibits banks from imposing certain
tying arrangements as well as certain
reciprocity and exclusive dealing
arrangements on their customers.14
Thus, for example, section 106 prohibits
a bank from imposing a condition on a
prospective borrower that requires the
borrower to do any of the following in
order to obtain a loan from the bank—
• Purchase an insurance product from
the bank or an affiliate of the bank (a
prohibited tie);
• Obtain corporate debt or equity
underwriting services from an affiliate
of the bank (a prohibited tie);
• Sell the bank or an affiliate of the
bank a piece of real estate unrelated to
the requested loan (a prohibited
reciprocity arrangement); or
• Refrain from obtaining insurance
products or securities underwriting
services from a competitor of the bank
or from a competitor of an affiliate of the
bank (a prohibited exclusive dealing
arrangement).
For ease of reference, this statement
uses the phrase ‘‘tying arrangement’’ to
refer to all types of tying, reciprocity
and exclusive dealing arrangements
described in section 106. In addition,
although section 106 generally refers to
‘‘credit,’’ ‘‘property’’ or ‘‘service’’ in
describing the items sought or required
to be obtained from (or provided to) the
bank or an affiliate, this statement uses
the term ‘‘product’’ to refer to any type
of credit, property or service.
There are several noteworthy points
about the anti-tying prohibitions of
section 106. First, section 106 does not
require a bank to extend credit or
provide any other product to any
customer. That is, section 106 does not
prohibit a bank from declining to
provide credit or any other product to

a customer so long as the bank’s
decision is not based on the customer’s
failure to satisfy a condition or
requirement prohibited by section 106.
Thus, for example, section 106 does not
prohibit a bank from denying credit to
a customer on the basis of the
customer’s financial condition, financial
resources or credit history, or because
the bank does not offer (or seeks to exit
the market for) the type of credit
requested by the customer.
Second, section 106 applies only to
tying arrangements that are imposed by
a bank. The statute does not apply to
tying arrangements imposed by a
nonbank affiliate of a bank.15 For
example, section 106 prohibits a bank
from requiring a person to purchase
insurance from the bank’s insurance
affiliate in order to obtain a reduced
interest rate on a loan from the bank.
Importantly, such an arrangement is
prohibited by section 106 even if the
customer is informed of the bank’s
reduced-rate offer by the bank’s
insurance affiliate (for example, when
the customer applies to the insurance
affiliate to obtain insurance). In either
case, it is the bank that is varying the
price of a bank product (the loan) based
on a requirement that the customer
obtain another product (insurance) from
an affiliate. Such action by the bank
violates section 106.
On the other hand, section 106 does
not apply to the insurance agency
affiliate of the bank.16 Thus, section 106
would not prohibit the insurance agency
affiliate of a bank from offering a
discount on the premiums the affiliate
charges to customers that purchase more
than one type of insurance (e.g.,
homeowners and automobile insurance)
from the affiliate. In addition, section
106 would not prohibit the insurance
agency affiliate from offering discounts
on premiums to customers who also
have a loan from, or deposit account
with, the bank. In both of these cases,
it is the affiliate (and not the bank) that
has imposed the condition governing
the sale of its products.17
Third, section 106 covers some
activities that are not included in the

13 For a discussion of the definition of the terms
‘‘bank’’ and ‘‘affiliate,’’ see Parts V and VI,
respectively.
14 ‘‘Tying arrangements’’ are arrangements that
require a customer to obtain a product from the
bank or one of its affiliates as a condition of the
bank providing another product to the customer.
‘‘Reciprocity arrangements’’ are arrangements that
require a customer to provide a product to the bank
or one of its affiliates as a condition of the bank
providing another product to the customer.
‘‘Exclusive dealing arrangements’’ are arrangements
that require a customer not to obtain a product from
a competitor of the bank or of an affiliate as a
condition of the bank providing another product to
the customer.

15 Tying arrangements imposed by a nonbank
affiliate of a bank are, however, subject to the antitying restrictions of the general antitrust laws.
16 There is one exception to the general rule that
affiliates of a bank are not subject to section 106.
This exception is discussed in Part V.
17 A bank, however, may not evade the
prohibitions of section 106 by engaging jointly with
an affiliate in a transaction in which the affiliate
nominally imposes a condition on the customer that
the bank is prohibited from imposing on the
customer under section 106. Part VI of this
statement provides some examples of situations
when a tie that is nominally imposed by an affiliate
of a bank will be viewed as a tie imposed by the
bank for purposes of section 106.

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conventional notion of tying. Namely,
section 106 prohibits banks from
granting certain types of price
discounts—that is, varying the price of
a product on the condition that the
customer purchase one or more other
products from the bank or an affiliate.
Thus, section 106 may restrict the
ability of banks to provide price
discounts (including rebates) on
bundled products depending on what
products are in the bundle and which
ones are discounted. Section 106 does
not, however, prohibit a bank from
discounting the price of an individual
product for reasons that are unrelated to
another product. For example, a bank
may offer a customer a discount on the
purchase of an individual product in
light of the amount of the individual
product proposed to be purchased by
the customer, the creditworthiness of
the customer, or the unique features of
the product or transaction.
Fourth, several important exceptions
exist to the general prohibitions of
section 106. For example, the statute
itself expressly permits a bank to
condition the availability or price of a
product on a requirement that the
customer also obtain a loan, discount,
deposit or trust service from the bank.
The statute also expressly permits a
bank to condition the availability or
price of a product on a requirement that
the customer provide the bank some
additional product that is related to and
usually provided in connection with a
loan, discount, deposit or trust service.
The Board, acting pursuant to authority
conferred by section 106, also has
adopted by regulation several important
exceptions to the statute’s anti-tying
restrictions.18 The statutory and
regulatory exceptions to section 106 are
discussed in Part IV of this statement.
Because of the statute’s complexity
and the importance of the actions,
statements and policies of the bank in
analyzing whether section 106 has been
violated, the determination of whether a
violation of section 106 has occurred
often requires a careful review of the
specific facts and circumstances
associated with the relevant transaction
(or proposed transaction) between the
bank and the customer. Banks should
establish and maintain policies,
procedures and systems that, in light of
the nature, scope and complexity of the
bank’s activities, are reasonably
designed to ensure that the bank’s
employees and representatives are
trained appropriately concerning the
18 12 U.S.C. 1972(1). The exceptions to section
106 adopted by the Board by regulation are codified
in section 225.7 of the Board’s Regulation Y (12
CFR 225.7).

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anti-tying prohibitions of section 106
and that the bank complies with the
statute. Part VII of this statement
discusses the types of policies,
procedures and systems that should
help banks comply with the anti-tying
restrictions of section 106.
Bank customers that believe they have
been the object of a tying arrangement
prohibited by section 106 are
encouraged to contact the appropriate
Federal banking agency for the bank
involved. These agencies are the Office
of the Comptroller of the Currency for
national banks, the Board for statechartered banks that are members of the
Federal Reserve System (‘‘state member
banks’’), and the Federal Deposit
Insurance Corporation for statechartered banks that are not members of
the Federal Reserve System (‘‘state nonmember banks’’).
Savings associations are subject to
anti-tying restrictions under the Home
Owners’ Loan Act (HOLA) that are
virtually identical to those applicable to
banks under section 106.19 Customers of
a savings association that believe the
savings association has violated the
anti-tying restrictions of the HOLA
should contact the Office of Thrift
Supervision.
III. What Are the Essential Elements of
an Impermissible Tying Arrangement
Under Section 106?
Congress modeled section 106 on the
anti-tying principles developed under
the general antitrust laws (the Sherman
and Clayton Acts), which apply to all
companies, including banks and their
affiliates, that act in interstate
commerce. As a general matter, a tying
arrangement violates the Sherman and
Clayton Acts if:
(1) The arrangement involves two or
more separate products;
(2) The seller forces a customer
seeking to purchase one of the products
(the ‘‘desired product’’) also to purchase
the other product;
(3) The seller has sufficient economic
power in the market for the desired
product to enable it to restrain trade in
the market for the other product;
(4) The arrangement has anticompetitive effects in the market for the
other product; and
(5) The arrangement affects a ‘‘not
insubstantial’’ amount of interstate
commerce.20
19 See 12 U.S.C. 1464(q); Integon Life Insurance
Corp. v. Browning, 989 F.2d 1143, 1149 (11th Cir.
1993).
20 See Yentsch v. Texaco, Inc., 630 F.2d 46 (2d
Cir. 1980); Tic-X-Press, Inc. v. Omni Promotions
Co., 815 F.2d 1407 (11th Cir. 1987); see also 9
Phillip Areeda, Antitrust Law at ¶1702 (1991). A
tying arrangement may be found to be per se illegal

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Although tying arrangements by
banks are subject to the general antitrust
laws, Congress determined to subject
tying arrangements by a bank to a
stricter standard. As a general matter,
there are only two essential elements
that must be shown to establish that a
tying arrangement by a bank violates
section 106:
(1) The arrangement must involve two
or more separate products: the
customer’s desired product(s) and one
or more separate tied products; and
(2) The bank must force the customer
to obtain (or provide) the tied product(s)
from (or to) the bank or an affiliate in
order to obtain the customer’s desired
product(s) from the bank.21
This Part III discusses the essential
elements of any prohibited tying
arrangement under section 106.22 Part
IV discusses the statutory and regulatory
exceptions to these general rules, as
well as special issues that arise in
applying these exceptions.
A. Arrangement Must Involve Two
Products—a Desired Product and a Tied
Product.
In order for a tying arrangement to
exist under section 106, the arrangement
must involve two or more separate
products. A bank does not violate
section 106 by requiring a customer to
obtain (or provide) two or more aspects
under the general antitrust laws without any
showing of anti-competitive effects in the market
for the other product if the seller has sufficiently
strong economic power in the market for the
desired product. See Jefferson Parish Hospital
District No. 2 v. Hyde, 466 U.S. 2 (1984). In these
cases, the courts essentially assume that the tying
arrangement, combined with the seller’s strong
economic position in the market for the desired
product, has or will produce anti-competitive
effects. Id. at 16, n. 25.
In conventional antitrust parlance, the desired
product is known as the ‘‘tying product,’’ because
it is customers’ desire to obtain it that allows a
producer to tie other, possibly unwanted
products—the tied products—to it. In the interest of
clarity, this statement uses the term ‘‘desired
product’’ instead of ‘‘tying product.’’
21 Legislative history indicates that economic
power, anti-competitive effects, and effects on
interstate commerce are not necessary elements of
a section 106 claim. See S. Rep. No. 1084, 91st
Cong., 2d Sess. (1970), reprinted in 1970
U.S.C.C.A.N. 5519, 5558 (‘‘Senate Report’’)
(Supplementary views of Sen. Brooke); Senate
Report at 5547 (Supplementary views of Senators
Bennett, Tower, Percy and Packwood); see also
Integon Life Insurance Corp. v Browning, 989 F.2d
1143 (11th Cir. 1993); Amerifirst Properties, Inc. v.
FDIC, 880 F.2d 821 (5th Cir. 1989); 62 FR 9290,
9313, Feb. 28, 1997; 59 FR 65473, Dec. 20, 1994.
22 The exclusive dealing prohibition in section
106 (12 U.S.C. 1972(1)(E)) also prohibits a bank
from requiring that a customer refrain from
obtaining another product from a competitor of the
bank or of an affiliate in order to obtain the
customer’s desired product. Although exclusive
dealing arrangements are not specifically discussed
in this Part III, the elements discussed in this Part
III are equally applicable to exclusive dealing
arrangements prohibited by section 106.

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of a single product from (or to) the bank
or an affiliate, or by conditioning the
availability or varying the price of a
product on the basis of the
characteristics or terms of that
product.23 For example, a bank does not
violate section 106 by requiring—
• A prospective borrower to provide
the bank specified collateral in order to
obtain the loan or to obtain the loan at
a favorable interest rate; or
• An existing borrower to post
additional collateral, accept a higher
interest rate, or provide updated or
additional financial information as a
condition of renewal of the loan.
In such circumstances, the bank’s
conditions relate to the single product
sought by the customer (a loan) and do
not involve separate, distinguishable
products.24
In applying section 106, it is useful to
identify which of the separate products
is the ‘‘tied product’’ and which is the
‘‘desired product.’’ The ‘‘tied product’’
is the product that the customer is
required to obtain (or provide) in order
to have access to or get a price discount
on the ‘‘desired product.’’ Section 106 is
premised on the notion that the
‘‘desired product’’ is the product the
customer really seeks.
To illustrate, suppose a customer
seeks a mortgage loan (the desired
product) from a bank. Section 106
prohibits a bank from requiring that the
customer purchase homeowners
insurance (the tied product) from the
bank or an affiliate of the bank as a
condition to granting the customer the
mortgage loan or a discount on the loan.
However, as discussed in Part IV, some
exceptions from the statute’s
prohibitions are available where the tied
product is a traditional bank product
(that is a loan, discount, deposit or trust
service). The Board notes that certain
types of derivative products, such as
interest rate and foreign exchange
swaps, often are sold by banks and
purchased by customers in connection
with lending transactions. The Board
23 As a general matter, two products are separate
and distinct for purposes of section 106 only if
there is sufficient consumer demand for each of the
products individually that it would be efficient for
a firm to provide the two products separately. See
Eastman Kodak Co. v. Image Technical Services,
Inc., 504 U.S. 451, 462 (1992); Jefferson Parish
Hospital District No. 2 v. Hyde, 466 U.S. 2, 19
(1984). Determining whether sufficient consumer
demand exists for the two products separately often
is a highly fact-intensive inquiry that depends on
the nature and character of the products and
markets involved. See 2 Joseph P. Bauer and
William H. Page, Kintner Federal Antitrust Law
13.17 (2002).
24 A tying arrangement, however, may exist where
a bank imposes a condition that involves two
separate products of the same type (e.g., two
separate insurance products).

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requests comment on how interest rate
swaps, foreign exchange swaps, and
other derivative products that often are
connected with lending transactions
should be treated under section 106.
B. Bank—Imposed Condition or
requirement.
Section 106 applies only if a bank
provides or offers to provide a customer
one product (the desired product), or a
discount on the desired product, ‘‘on
the condition or requirement’’ that the
customer obtain (or provide) an
additional product (the tied product)
from (or to) the bank or an affiliate. This
element of section 106 was modeled on
the tying prohibitions in the general
antitrust laws.
Under the general antitrust laws, an
illegal tie exists only where the seller
forces the customer to purchase the tied
product in order for the customer to
obtain its desired product.25
Accordingly, a seller engages in an
illegal tie under the general antitrust
laws only if it requires the customer to
purchase the tied product to obtain the
customer’s desired product.26 Moreover,
the evidence must demonstrate that the
seller imposed the arrangement on the
customer through some type of
coercion.27 Thus, the courts have held
that a seller’s bundled sale of multiple
25 See Times-Picayune Publishing Co. v. United
States, 345 U.S. 594, 614 (1953) (‘‘The common core
of . . . unlawful tying arrangements is the forced
purchase of a second distinct commodity with the
desired purchase of a dominant ‘tying’
product’’)(emphasis added); see also Datagate, Inc.
v. Hewlett-Packard Co., 60 F.3d 1421 (9th Cir.
1995), cert. denied 517 U.S. 1115 (1996); Thompson
v. Multi-List, Inc., 934 F.2d 1566, 1577–78 (11th Cir.
1991), reh’g en banc denied 946 F.2d 906 (1991);
Yentsch v. Texaco, Inc., 630 F.2d 46, 56–57 (2d Cir.
1980); Response of Carolina, Inc. v. Leasco
Response, Inc., 537 F.2d 1307, 1327 (5th Cir. 1976);
American Manufacturers Mut. Ins. Co. v. American
Broadcasting-Paramount Theatres, Inc., 446 F.2d
1131, 1137 (2d Cir. 1971), cert. denied 404 U.S.
1063 (1972).
26 See, e.g., Northern Pacific Ry. v. United States,
356 U.S. 1, 5–6 (1958) (‘‘a tying arrangement may
be defined as an agreement by one party to sell one
product only on the condition that the buyer also
purchases a different (or tied) product’’) (emphasis
supplied); Tic-X-Press, Inc. v. Omni Promotions
Co., 815 F.2d 1407, 1415–17 (11th Cir. 1987); 9
Phillip Areeda, Antitrust Law at ¶1752 (1991)
(‘‘There is no tie for any antitrust purpose unless
the defendant improperly imposes conditions that
explicitly or practically require buyers to take the
second product if they want the first one.’’)
27 See, e.g., Thompson v. Multi-List, Inc., 934 F.2d
1566, 1577–78 (11th Cir. 1991), reh’g en banc
denied 946 F.2d 906 (1991); Tic-X-Press, Inc. v.
Omni Promotions Co., 815 F.2d 1407, 1415 & 1418–
19 (11th Cir. 1987); Unijax, Inc. v. Champion Int’l,
Inc., 683 F.2d 678, 685 (2d Cir. 1982) (‘‘Actual
coercion by the seller that in fact forces the buyer
to purchase the tied product is an indispensable
element of a tying violation.’’); Bob Maxfield, Inc.
v. American Motors Corp., 637 F.2d 1033, 1037 (5th
Cir.) (‘‘actual coercion is an indispensable element
of a tie-in charge’’), cert. denied 454 U.S. 860
(1981).

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products to a customer does not violate
the general antitrust laws if the
customer voluntarily decided to
purchase the package of products from
the seller.28 In such circumstances, the
seller has not coerced or forced the
buyer to purchase any product from the
seller.
The language and legislative history
of section 106 indicate that this
distinction between an arrangement
imposed by the seller and one
voluntarily sought by the customer also
is embedded in section 106.29
Accordingly, section 106 applies only if
each of two requirements are met: (1) A
condition or requirement exists that ties
the customer’s desired product to
another product; and (2) this condition
or requirement was imposed or forced
on the customer by the bank.30
1. Existence of a condition or
requirement.
First, a violation of section 106 may
occur only when a customer is required
to obtain an additional product from, or
provide an additional product to, the
bank or an affiliate in order to obtain the
customer’s desired product or a
discount on the desired product.31 It is
28 See, e.g., Tic-X-Press, Inc. v. Omni Promotions
Co., 815 F.2d 1407, 1417 (11th Cir. 1987) (‘‘two
products are not tied as a matter of antitrust law if
the buyer voluntarily purchases the tied product’’);
Sports Form, Inc. v. United Press International, Inc.,
686 F.2d 750, 754 (9th Cir. 1982) (‘‘Where a
company is simply sold what it wishes to buy, there
can be no tying problem.’’); Dunkin Donuts of
America, Inc. v. Dunkin Donuts, Inc., 531 F.2d
1211, 1224 (3d Cir.), cert. denied 429 U.S. 823
(1976) (‘‘a voluntary purchase of two products is
simply not a tie-in’’); Capital Temporaries, Inc. v.
Olsten Corporation, 506 F.2d 658, 662 (2d Cir.
1974) (‘‘We do not think that there can be any
question that no tying arrangement can possibly
exist unless the person aggrieved can establish that
he has been required to purchase something which
he does not want to take.’’)
29 See Conf. Rep. No. 1747, 91st Cong., 2d Sess.,
reprinted in 1970 U.S.C.C.A.N. 5561, 5569
(‘‘Conference Report’’).
30 As discussed in Part IV, exceptions to section
106 allow a bank to impose a condition on a
customer in certain circumstances where the tied
product is a traditional bank product. In addition,
as discussed in Part IV, arrangements that allow the
customer the option to satisfy a condition imposed
by the bank through the purchase of traditional
bank products or other products do not force a
customer to purchase a non-traditional product in
violation of section 106 if the customer has a
meaningful choice of satisfying the condition solely
through the purchase of traditional bank products.
31 See Conference Report at 5580 (Section 106
‘‘prohibits any subsidiary bank from providing any
credit, property or service for a customer on the
condition that he must obtain from, or provide to,
the holding company or any other subsidiary
thereof some additional credit, property or
service.’’); Senate Report at 5535 (‘‘The purpose of
[the anti-tying provisions] is to prohibit anticompetitive practices which require bank customers
to accept or provide some other service or product
or refrain from dealing with other parties in order
to obtain the bank product or services they
desire.’’); see also Integon Life Insurance Corp. v

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the existence of such a requirement that
forms the heart of an illegal tying
arrangement. Absent a requirement that
the customer obtain a separate product
from, or provide a separate product to,
the bank or an affiliate, there is no ‘‘tie’’
between the customer’s desired product
and another product.
Thus, for example, a bank would
violate section 106 if the bank informs
a customer seeking only a loan from the
bank that the bank will make the loan
only if the customer commits to hire the
bank’s securities affiliate to underwrite
an upcoming bond offering for the
customer. In this example, the bank has
conditioned the availability of credit to
the customer on a requirement that the
customer obtain another product (bond
underwriting services) from an affiliate
of the bank.
Section 106, however, does not
prohibit a customer from deciding on its
own to award some of its business to a
bank or an affiliate as a reward for the
bank previously providing credit or
other products to the customer. Using
the example in the previous paragraph,
if the bank made the loan to the
customer without conditioning it on a
requirement that the customer obtain
one or more additional products from
the bank or an affiliate, then no tie
actionable under section 106 would
exist if the customer later voluntarily
decides to award some of its securities
underwriting business to the bank’s
securities affiliate.
In addition, section 106 does not
prohibit a bank from granting credit or
providing any other product to a
customer based solely on a desire or
hope (but not a requirement) that the
customer will obtain additional
products from the bank or its affiliates
in the future. This is true even if the
bank conveys to the customer this desire
or hope for additional business. Section
106 also does not prohibit a bank from
cross-marketing the full range of
products offered by the bank or its
affiliates to a customer or encouraging
an existing customer to purchase
additional products offered by the bank
or its affiliates. Cross-marketing and
cross-selling activities, whether
suggestive or aggressive, are part of the
nature of ordinary business dealings and
do not, in and of themselves, represent
a violation of section 106. However,
bank actions that go beyond crossmarketing or cross-selling and that
Browning, 989 F.2d 1143 (11th Cir. 1993); Tose v.
First Pennsylvania Bank, 648 F.2d 879 (3rd Cir.
1981), cert. denied 454 U.S. 893 (1981); Duryea v.
Third Northwestern National Bank, 606 F.2d 823
(8th Cir. 1979); Stefiuk v. First Union, 61 F. Supp.2d
1294 (S.D. Fla. 1999), aff’d without opinion 207
F.3d 664 (11th Cir. 2000).

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indicate that the bank will not provide
the customer the desired product unless
the customer obtains (or provides)
another product from (or to) the bank or
an affiliate do raise issues under section
106.
Importantly, a prohibited tying
arrangement does not exist if the bank
offers the customer the opportunity to
obtain the customer’s desired product
(or a discount on the desired product)
from the bank separately from the
allegedly tied product. That is, if the
customer was offered the option of
obtaining the customer’s desired
product or discount from the bank
without also obtaining (or providing) the
allegedly tied product from (or to) the
bank or an affiliate, then the customer
was not required to obtain (or provide)
the other product to obtain the desired
product or discount. In such
circumstances, no ‘‘tie’’ would exist
between the two products for purposes
of section 106.32
2. Condition or requirement was
imposed or forced on the customer by
the bank.
Even if a condition or requirement
exists tying the customer’s desired
product to another product, a violation
of section 106 may occur only if the
condition or requirement was imposed
or forced on the customer by the bank.33
In this regard, section 106 was intended
to prohibit banks from using their
ability to offer bank products, and credit
in particular, as leverage to force a
customer to purchase (or provide)
another product from (or to) the bank or
an affiliate.34 It was not the purpose of
the statute to prohibit bank customers
from using their own bargaining power
to obtain a package of desired products
from a bank and its affiliates or a price
discount on those products. Similarly, it
32 See John Doe v. Norwest Bank Minnesota, N.A.,
107 F.3d 1297, 1304 (8th Cir. 1997); Stefiuk v. First
Union Nat’l Bank, 61 F. Supp. 2d 1294, 1299 (S.D.
Fla. 1999), aff’d without opinion 207 F.3d 664 (11th
Cir. 2000); Nordic Bank PLC v. Trend Group, Ltd.,
619 F. Supp. 542, 553 (S.D.N.Y. 1985).
33 See 116 Cong. Rec. S15708 (daily ed. Sept. 16,
1970) (‘‘The bill as amended would require that a
condition or requirement imposed by the bank must
be demonstrated in order to prove that a violation
of [section 106] has occurred.’’) (Statement of Sen.
Bennett).
34 See Conference Report at 5569 (‘‘Section 106 of
the bill, which has become known as the anti-tiein section, will largely prevent coercive tie-ins and
reciprocity.’’); 116 Cong. Rec. S20647 (daily ed.
Dec. 18, 1970) (Statement of Sen. Brooke) (violation
of section 106 occurs ‘‘where the totality of the
circumstances indicates that the customer has not
voluntarily entered into the transaction, but rather
has been induced into doing so through coercion’’);
116 Cong. Rec. S15709 (daily ed. Sept. 16, 1970)
(attaching letter from Arthur Burns, Chairman of the
Board of Governors of the Federal Reserve System,
noting that section 106 ‘‘would prohibit coercive
tie-ins involving banks, bank holding companies,
and their subsidiaries’’).

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was not the purpose of the statute to
prohibit customers from voluntarily
seeking and obtaining multiple products
that the customer desires from a bank or
its affiliates.35
Accordingly, if a condition or
requirement exists, further inquiry may
be necessary to determine whether the
condition or requirement was imposed
or forced on the customer by the bank.
If the condition or requirement resulted
from coercion by the bank, then the
condition or requirement violates
section 106, unless an exemption is
available for the transaction.36
Prohibited coercive actions may be
explicit or implicit. In some cases, a
bank’s coercive behavior may be clear
from the agreement or conversations
between the bank and the customer. In
other cases, coercion may be implicit
and reasonably inferred from the facts
and circumstances surrounding the
transaction.
On the other hand, if a condition or
requirement was voluntarily sought or
imposed by the customer, then the
arrangement results from the free choice
of the customer and no violation of
section 106 has occurred. Thus, for
example, a violation of section 106 does
not occur if a large corporate customer
of a bank demands that the bank
provide the customer one product (such
as a loan) in order for the bank or its
affiliates to obtain other business from
the customer (such as bond
underwriting business), and the bank
agrees to the customer’s condition. In
such circumstances, it is the customer
35 See Conference Report at 5569; 116 Cong. Rec.
S16316 (daily ed. Sept. 23, 1970) (Remarks of
Donald I. Baker, Deputy Director of Policy Planning,
Antitrust Division, Department of Justice, submitted
by Senator Proxmire). The statute’s legislative
history, for example, indicates that a voluntary tiein may occur when a customer believes that it
stands a better chance of ‘‘securing a scarce and
important commodity (such as credit) by
‘volunteering’ to accept other products or services’’
from the bank or its affiliates. Although the statute’s
legislative history characterizes this type of
voluntary tying as generally being undesirable, it
also explicitly states that such voluntary tying is not
prohibited by section 106. See Conference Report at
5569. The Board also has noted previously that
section 106 prohibits coercive tying arrangements,
but does not prohibit voluntary tying. See, e.g.,
Mercantile Bancorporation, 66 Federal Reserve
Bulletin 799 (1980); Barnett Banks, Inc., 61 Federal
Reserve Bulletin 678 (1975).
36 The Board recognizes that some courts have
held that a tying arrangement may violate section
106 without a showing that the arrangement
resulted from any type of coercion by the bank. See,
e.g., Dibidale of Louisiana, Inc. v. American Bank
& Trust Company, 916 F.2d 300 (5th Cir. 1990).
After carefully reviewing the language, legislative
history and purposes of the statute, the Board
believes the better interpretation of section 106 is
that a violation may exist only if a bank forces or
coerces a customer to obtain (or provide) the tied
product as a condition to obtaining the customer’s
desired product.

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52029

that is using its business as leverage to
obtain the products it desires—an action
that does not implicate the purposes or
proscriptions of section 106. Likewise, a
violation of section 106 does not occur
if a customer seeking to engage in a
multi-faceted corporate transaction
voluntarily solicits a bid from a bank
and its securities affiliate for a package
of products related to the transaction
(such as a bridge loan, strategic advisory
services, and bond underwriting
services) and the bank and the securities
affiliate offer to provide the customer all
of the requested products.
3. Factual inquiry required.
As the foregoing illustrates, the
specific facts and circumstances
surrounding the bank-customer
relationship often will be critical in
determining whether a prohibited
condition or requirement existed and
whether the condition or requirement
was imposed or forced on the customer
by the bank or was volunteered or
sought by the customer. Typically, the
terms of the bank’s offer to the customer
or the agreement entered into between
the bank and the customer will provide
the best evidence of whether the
customer was required to purchase (or
provide) an additional product as a
condition of obtaining the customer’s
desired product. The timing and
sequence of the offers, purchases or
other transactions between the customer
and the bank or its affiliates that form
the basis of the alleged tying
arrangement, and the nature of the
condition or requirement itself, also
may be particularly relevant in
determining whether the customer was
required to obtain (or provide) the tied
product in order to obtain the desired
product.
Other information that may be useful
in determining whether a condition or
requirement exists and, if so, whether
the bank coerced the customer into
accepting the condition or requirement
include any correspondence and
conversations between the bank and the
customer concerning the transaction;
the marketing or other materials
presented to the customer by the bank
or an affiliate; the bank’s course of
dealings with the customer and other
similarly situated customers; the
banking organization’s policies and
procedures; the customer’s course of
dealings with the bank and other
financial institutions; the financial
resources and level of sophistication of
the customer; and whether the customer
was represented by legal counsel or
other advisors.

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IV. What Are the Exceptions to the AntiTying Prohibitions of Section 106?
Section 106 contains several
exceptions to its anti-tying prohibitions.
Congress also authorized the Board to
grant additional exceptions from the
statute’s prohibitions, by regulation or
order, if the Board determines the
exception ‘‘will not be contrary to the
purposes of [section 106].’’ 37 The
exceptions adopted by Congress and the
authorization granted to the Board to
grant additional exceptions were
intended in part to ensure that section
106 did not interfere with the conduct
of appropriate traditional banking
practices.38
A. Tying Arrangements Involving
Traditional Bank Products.
1. Statutory and regulatory
exceptions.
Section 106 specifically allows a bank
to condition both the availability and
price of any bank product (the desired
product) on the requirement that the
customer obtain a ‘‘traditional bank
product’’ (the tied product) from the
bank. One of the purposes of this
exception was to allow banks and their
customers to continue to negotiate their
fee arrangements on the basis of the
customer’s entire banking relationship
with the bank.39 The Board has
extended this exception by regulation to
include situations where the tied
product is a traditional bank product
offered by an affiliate of the bank, rather
than by the bank itself.40 Taken
together, these exceptions allow a bank
to restrict the availability or vary the
price of any bank product on the
condition that the customer also obtain
a traditional bank product from the bank
or an affiliate of the bank.
Several facts are important in
determining whether the traditional
bank product exceptions apply in a
given situation. First, the exceptions are
available only if the tied product is a
traditional bank product. The
availability of the exceptions, however,
does not depend on the type of desired
product involved; the desired product
may or may not be a traditional bank
product.
37 12 U.S.C. 1972(1). The exceptions that the
Board has adopted by regulation are set forth at
section 225.7(b) of the Board’s Regulation Y (12
CFR 225.7(b)). Regulation Y expressly permits the
Board to terminate the eligibility of a bank to
operate under any exception set forth in section
225.7(b) if the Board finds the activities conducted
by the bank under the exception result in anticompetitive practices. 12 CFR 225.7(c).
38 See 116 Cong. Rec. S15708 (daily ed. Sept. 16,
1970) (Statement of Sen. Bennett); see also Senate
Report at 5535.
39 See id.
40 See 12 CFR 225.7(b)(1)(i).

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Second, the exceptions apply only if
the tied product is a defined traditional
bank product. The statute defines a
traditional bank product to be a ‘‘loan,
discount, deposit, or trust service.’’ 41
The statute also defines a ‘‘trust service’’
to mean any service customarily
performed by a bank trust department.42
Products that fall within the scope of
these terms include, among other things,
the following:
• All types of extensions of credit,
including loans, lines of credit, and
backup lines of credit; 43
• Letters of credit and financial
guarantees;
• Lease transactions that are the
functional equivalent of an extension of
credit; 44
• Credit derivatives where the bank
or affiliate is the seller of credit
protection;
• Acquiring, brokering, arranging,
syndicating and servicing loans or other
extensions of credit;
• All forms of deposit accounts,
including demand, negotiable order of
withdrawal (‘‘NOW’’), savings and time
deposit accounts;
• Safe deposit box services;
• Escrow services;
• Payment and settlement services,
including check clearing, check
guaranty, ACH, wire transfer, and debit
card services;
• Payroll services;
• Traveler’s check and money order
services;
• Cash management services; 45
• Services provided as trustee or
guardian, or as executor or
administrator of an estate;
• Discretionary asset management
services provided as fiduciary; 46
• Custody services (including
securities lending services); and
41 12

U.S.C. 1972(1)(A).
at section 1971. A product that meets this
‘‘trust service’’ standard is a traditional bank
product even if the bank or affiliate providing the
product does not have, or does not provide the
product through, a trust department.
43 An ‘‘extension of credit’’ for this purpose does
not include underwriting, privately placing or
brokering debt securities.
44 ‘‘CEBA leases’’ that are entered into by banks
pursuant to 12 U.S.C. 24 (Tenth) are not considered
to be the functional equivalent of an extension of
credit.
45 The term ‘‘cash management services’’ refers
generally to the payment and collection services
that are provided to customers to speed collection
of receivables, control payments and efficiently
manage deposit balances. Cash management
services may include one or more of the traditional
bank products listed separately above, such as
deposit, payment and lockbox services.
46 A bank has discretionary authority over an
account for these purposes if the bank, acting in a
fiduciary capacity, has sole or shared authority
(whether or not that authority is exercised) to
determine what assets to purchase or sell on behalf
of the account. See 12 CFR 9.2(i).
42 Id.

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• Paying agent, transfer agent and
registrar services.
Thus, for example, the traditional
bank product exceptions permit a bank
to condition the availability or price of
a particular loan on a requirement that
the customer maintain a specified
amount of deposits with the bank or its
affiliates. Similarly, a bank may inform
a customer that it will lend (or continue
lending) to the customer only if the
customer obtains cash management
services from the bank or its affiliates.
In both cases, the bank’s actions are
permissible because the tied products
(deposits and cash management
services) are traditional bank products.
A bank, however, may not require a
customer seeking an auto loan from the
bank to purchase automobile insurance
from the bank or from an insurance
agency affiliate of the bank. Although
the desired product (an auto loan) in
this case is a traditional bank product,
the tied product (automobile insurance)
is not and, accordingly, the traditional
bank product exceptions are not
available for this transaction.
2. Mixed-product arrangements.
As discussed above, section 106 does
not prohibit a bank from conditioning
the grant of a loan to a customer on a
requirement that the customer also
obtain one or more traditional bank
products, or a specified amount of
traditional bank products, from the bank
or its affiliates. In some cases, however,
a bank may wish to provide a customer
the freedom to choose whether to satisfy
a condition imposed by the bank
through the purchase of one or more
traditional bank products or other ‘‘nontraditional’’ products (a ‘‘mixed-product
arrangement’’).47 Allowing a bank to
offer the customer the option of
satisfying a condition by purchasing
either traditional bank products or nontraditional products can provide
benefits to the customer (by increasing
the choices available to the customer)
without requiring the customer to
purchase any non-traditional product
from the bank or an affiliate in violation
of section 106.48
47 As used in this discussion, a mixed-product
arrangement involves a choice among traditional
bank products and non-traditional products. The
term does not apply to arrangements that involve
only traditional bank products (which, as discussed
in Part IV.A.1., are permissible under section 106)
or arrangements that involve only non-traditional
products (which, as discussed throughout this
statement, may be prohibited by section 106).
48 The Board previously has noted that the
addition of non-traditional products to a menu of
traditional bank products offered a customer may,
in some circumstances, increase customer choice in
a manner consistent with the purposes and intent
of section 106. See 60 FR 20186, 20187–88, April
25, 1995. Indeed, this rationale formed the basis of
the safe harbor that the Board adopted in 1995, as

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Accordingly, where a bank offers a
customer a mixed-product arrangement,
further analysis may be necessary to
determine whether the offer constitutes
a tying arrangement prohibited by
section 106. If the customer that is
offered the mixed-product arrangement
has a meaningful option to satisfy the
bank’s condition solely through the
purchase of the traditional bank
products included in the arrangement,
then the bank’s offer would not, in fact,
require the customer to purchase any
non-traditional product from the bank
or its affiliates in violation of section
106.49 In these circumstances, the
customer has been provided a
meaningful choice in determining
whether to satisfy the bank’s condition
through the purchase of traditional bank
products or non-traditional products,
and the bank’s inclusion of nontraditional products within the range of
tied products may be viewed as giving
the customer additional flexibility in
determining how it may choose to
satisfy a condition that the bank is
permitted by law to impose.
If, on the other hand, the customer
does not have a meaningful option to
satisfy the bank’s condition solely
through the purchase of the traditional
bank products included in the
arrangement, then the arrangement
violates section 106 because the
arrangement effectively requires the
customer to purchase one or more nontraditional products in order to obtain
the customer’s desired product or a
discount on the desired product. A
mixed-product arrangement also would
violate section 106 if the facts indicate
that the bank did not provide the
customer the freedom to choose to
satisfy the bank’s condition solely
through the purchase of one or more of
the traditional bank products included
in the mixed-product arrangement.50
To illustrate a mixed-product
arrangement, assume Company, a large
manufacturing concern with an
investment-grade credit rating, has a
an exception to section 106, for certain types of
combined-balance discount programs. Id. This safe
harbor is discussed further in Part IV.D.
49 Cf. Tic-X-Press, Inc. v. Omni Promotions Co.,
815 F.2d 1407, 1416–17 (11th Cir. 1987) (a tying
arrangement does not exist under the Sherman Act
if the buyer had ‘‘meaningful freedom of choice’’ in
deciding whether or not to purchase allegedly tied
product from the seller); Stephen Jay Photography,
Ltd. v. Olan Mills, Inc., 903 F.2d 988, 991 (4th Cir.
1990) (tying arrangement does not exist if customer
had the option to purchase, or not purchase, the
allegedly tied product).
50 Thus, a bank would violate section 106 if it
ostensibly offered a customer a mixed-product
arrangement, but informed the customer that the
customer could satisfy the bank’s condition only by
purchasing one or more of the non-traditional
products included in the arrangement.

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backup credit facility with Bank that
will shortly come up for renewal.
Assume also that Bank and its affiliates
periodically review the overall
profitability of their combined business
relationships with their large corporate
customers to determine whether the
profitability of the customers’ aggregate
business relationships with Bank and its
affiliates meets the internal profitability
threshold (the ‘‘hurdle rate’’) established
by Bank and its affiliates for that
customer or type of customer. In
accordance with this policy, Bank
conducts a review of the overall
profitability of Company’s relationships
with Bank and its affiliates and
determines that the profitability of
Company’s existing relationships with
Bank and its affiliates (i.e., the credit
facility with Bank) does not meet the
hurdle rate.
In light of this review, Bank informs
Company that Bank will not renew
Company’s credit facility unless
Company commits to provide Bank or
its affiliates sufficient additional
business to allow Company’s overall
relationships with Bank and its affiliates
to meet the hurdle rate. Bank does not
tie renewal of the credit to the purchase
by Company of any specific product or
package of products from Bank or its
affiliates. Rather, Bank informs
Company that Company is free to
choose from among all of the products
offered by Bank and its affiliates in
determining how Company may seek to
meet the hurdle rate. Bank and its
affiliates offer a wide variety of
products, including deposits, trust
services, cash management services and
several other traditional bank products
as well as bond underwriting services
and several other non-traditional
products.
Bank’s actions would be permissible
under section 106 if, for example,
Company could reasonably obtain
sufficient cash management services
from Bank to permit Company to meet
the hurdle rate. In such circumstances,
Company would have a meaningful
option to satisfy the hurdle rate solely
through the purchase of one or more of
the traditional bank products that are
offered by Bank and its affiliates (cash
management services in this example),51
and Bank’s actions would not effectively
require Company to purchase any nontraditional product in order to obtain
renewal of the credit facility. This is
true regardless of the product(s), if any,
51 Company would have a meaningful option
even though Company had a long-standing cash
management arrangement with another financial
institution so long as Company may legally transfer
its cash management business to Bank and Bank is
able to satisfy Company’s cash management needs.

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52031

that Company ultimately chooses to
obtain from Bank or its affiliates.
On the other hand, Bank’s actions
would violate section 106 if, for
example, Company could satisfy the
hurdle rate only by obtaining insurance,
securities underwriting or strategic
advisory services from Bank or an
affiliate of Bank. In such circumstances,
Company would not have a meaningful
option to satisfy the hurdle rate solely
through the purchase of one or more of
the traditional bank products that are
offered by Bank and its affiliates.
As the foregoing illustrates, the
determination of whether a mixedproduct arrangement comports with
section 106 often will depend on the
nature and characteristics of the
arrangement itself and the customers to
whom the arrangement is offered. Part
VII of this statement discusses the types
of policies, procedures and systems,
including internal audit and
recordkeeping systems, that should help
banks offering mixed-product
arrangements ensure that these
arrangements are structured and offered
in a manner consistent with section 106.
The Board will review these policies,
procedures and systems during the
supervisory process as part of its
examination and review of bank antitying policies, procedures and systems.
B. Reciprocity Exceptions
The reciprocity restrictions of section
106 generally prohibit a bank from
conditioning the availability or price of
a product (the desired product) on a
requirement that the customer provide
another product (the tied product) to the
bank or an affiliate.52 Section 106,
however, contains an exception for
situations where the tied product is to
be provided to the bank and is ‘‘related
to and usually provided in connection
with a loan, discount, deposit, or trust
service’’ (a ‘‘usually connected
product’’).53 The Board has extended
this exception by regulation to include
situations where a bank requires the
customer to provide a usually connected
product to an affiliate of the bank, rather
than to the bank itself.54 Taken together,
these exceptions allow a bank to restrict
the availability or vary the price of any
bank product on the condition that the
customer provide a usually connected
product to the bank or an affiliate of the
bank.
Both the statutory and regulatory
reciprocity exceptions are intended to
ensure that section 106 does not restrict
appropriate traditional banking
52 12

U.S.C. 1972(1)(C) and (D).
at 1972(1)(C).
54 See 12 CFR 225.7(b)(1)(ii).
53 Id.

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practices. Thus, for example, the
exceptions permit a bank to condition
the availability of secured credit on a
requirement that the customer obtain
insurance, for the benefit of the bank,
that protects the value of the bank’s
security interest in the collateral
securing the loan.55 Similarly, the
exceptions permit a bank to take a wide
variety of steps to protect the bank’s
financial interest in its credit
relationships, such as, for example,
requiring the affiliated parties of a
troubled borrower to pay down their
loans with the bank prior to renewing or
advancing additional credit to the
troubled borrower or requiring the
owners of a corporate borrower to
provide a personal guarantee of the
corporation’s debt to the bank.
Facts that may be relevant in
determining whether a bank’s demand
that a customer provide an additional
product is usual and appropriate and,
thus, permissible under the exceptions
include the relationship between the
tied product and the desired product;
whether the practice protects the value
of the bank’s credit or other exposures
to the customer and associated parties;
whether the practice is usual in the
banking industry in connection with the
type of product involved; and whether
the condition was imposed by the bank
principally to reduce competition or
allow it to compete unfairly in the
market for the tied product. The Board
notes, however, that a reciprocity
arrangement involving a loan or other
product does not violate section 106
simply because the arrangement is not
frequently imposed in banking
transactions. Contractual agreements
between banks and their customers, and
loan agreements in particular, often are
tailored to account for the
characteristics of the individual
customer and the specific transaction at
issue. Accordingly, even though a
particular reciprocal arrangement is
uncommon, it still may reflect an
appropriate banking practice in light of
the facts and circumstances surrounding
the transaction.56
55 The bank, however, may not require that the
customer obtain the insurance from the bank or an
affiliate of the bank.
56 For example, as one court has noted, debtors
in ‘‘serious financial straits, working with their
creditors, [often] enter into numerous types of
transactions that protect the creditors’ investments
while permitting the debtors’ businesses to
continue. The complexity of the transactions and
special needs of the parties involved determine the
type of arrangement that will be made to secure the
joint aims of the debtor and creditor. Due to the
complicated circumstances of many bailout cases,
the specific banking transactions utilized may
appear uncommon, yet, in the milieu of bailouts,
they constitute appropriate banking practices. As
such, they do not violate [section 106].’’ See

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C. Exclusive Dealing Exception
The statute’s exclusive dealing
restriction generally prohibits a bank
from conditioning the availability or
price of a bank product (the desired
product) on a requirement that the
customer not obtain another product
(the tied product) from a competitor of
the bank or a competitor of an affiliate
of the bank.57 This restriction, for
example, prohibits a bank that has a
securities affiliate engaged in bond
underwriting activities from threatening
a corporate customer that the bank will
terminate the bank’s credit relationships
with the customer if the customer uses
the bond underwriting services of a
competitor of the bank’s securities
affiliate.
Section 106 contains an exception to
its exclusive dealing restriction for
situations where the condition was
reasonably imposed by the bank in a
credit transaction to ensure the
soundness of the credit.58 This
exception, like the statutory reciprocity
exception, was intended to preserve the
ability of banks to take appropriate steps
to protect their credit extensions to
customers.
This exception, for example, permits
a bank, when consistent with
appropriate banking standards, to
condition the availability of a loan to a
customer on the requirement that the
customer not borrow from other sources
(or pledge any collateral securing the
loan to other entities) during the term of
the loan.59 Similarly, this exception
would permit a bank to condition the
availability of floating-rate credit on a
requirement that the prospective
borrower hedge its floating-rate
exposure by purchasing a fixed-tofloating interest rate swap, and limiting
the permitted swap counterparties to
those with a certain minimum credit
rating. Although this condition may
prevent the borrower from obtaining the
swap from some less creditworthy
competitors of the bank, the condition
would appear to be reasonably designed
to enhance the collectibility of the
credit.
D. Regulatory Safe Harbors
1. Combined-balance discount safe
harbor.
The Board has granted a regulatory
safe harbor for combined-balance
discount packages, provided that they
Continental Bank of Pennsylvania v. Barclay Riding
Academy, Inc., 93 N.J. 153, 459 A.2d 1163, cert.
denied 464 U.S. 994 (1983).
57 12 U.S.C. 1972(1)(E).
58 Id.
59 See 116 Cong. Rec. S15708 (daily ed. Sep. 16,
1970) (Statement of Sen. Bennett).

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are structured in a way that does not, as
a practical matter, obligate customers to
purchase non-traditional products in
order to obtain the discount.60 This safe
harbor allows a bank to vary the
consideration for a product or package
of products based on a customer’s
maintaining a combined minimum
balance in certain products specified by
the bank if three conditions are met: the
bank offers deposits; all deposits are
eligible to be counted toward the
minimum balance; and deposits count
at least as much as nondeposit products
toward the minimum balance.61
Although the products included in the
combined-balance discount program
must be specified by the bank, the
products may be offered by the bank or
by an affiliate of the bank.
2. Foreign transaction safe harbor.
The Board also has granted a
regulatory safe harbor for bank
transactions with foreign persons.62 The
foreign transaction safe harbor provides
that the anti-tying prohibitions of
section 106 do not apply to transactions
between a bank and a customer if: (i)
The customer is a company that is
incorporated, chartered, or otherwise
organized outside the United States and
has its principal place of business
outside the United States (a ‘‘foreign
company’’); or (ii) the customer is an
individual who is a citizen of a country
other than the United States and is not
resident in the United States.
The foreign transaction safe harbor
would generally be available for a loan
transaction entered into by a bank with
a foreign company even if the loan is
partially guaranteed by a U.S.
incorporated affiliate of the foreign
company, or the foreign company
directs the bank to disburse a portion of
the loan proceeds to a U.S. incorporated
affiliate of the foreign company that is
not a party to the loan agreement. Such
a loan transaction with a foreign
company, however, would not qualify
for the foreign transaction safe harbor if
60 12

CFR 225.7(b)(2).
Board recently issued an interpretive letter
clarifying that any financial product, including
insurance products, may be included in a
combined-balance discount program and explaining
the permissible methods for weighting insurance
products within a combined-balance discount
program. See Letter dated May 16, 2001, from J.
Virgil Mattingly, Jr., General Counsel of the Board,
to Carl Howard. The Board also recently issued a
letter indicating that, for purposes of applying the
regulatory safe harbor for combined-balance
discount programs, the term ‘‘customer’’ may
include separate individuals who are all members
of the same immediate family (as defined in 12 CFR
225.41(b)(3)) and who all reside at the same
address. See Letter dated November 26, 2002, from
J. Virgil Mattingly, Jr., General Counsel of the
Board, to Oliver I. Ireland.
62 12 CFR 225.7(b)(3).
61 The

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the facts and circumstances surrounding
the transaction indicate that the
borrower, in substance, was the U.S.
incorporated affiliate and not the foreign
company. The safe harbor also would
not protect tying arrangements where
the customer itself is a U.S.
incorporated subsidiary of a foreign
company.
3. Transactions outside a ‘‘safe
harbor’’.
The combined-balance discount and
foreign transaction provisions discussed
above are regulatory safe harbors.
Accordingly, some combined-balance
discount programs that are outside the
regulatory safe harbor still may not be
covered by section 106 because the
arrangement does not satisfy the
essential elements of a prohibited tying
arrangement under section 106 or
qualifies for another statutory or
regulatory exception from section 106.
In addition, some tying arrangements
that are outside the foreign transaction
safe harbor still may not be covered by
section 106 because the transactions
involved are so foreign in nature that
they do not raise the competitive
concerns that section 106 was designed
to address.
V. What Is a ‘‘Bank’’ for Purposes of
Section 106?
Section 106 applies, by its terms, to
any depository institution that meets the
definition of ‘‘bank’’ in section 2(c) of
the Bank Holding Company Act (BHC
Act), including a grandfathered
‘‘nonbank bank’’ that is controlled by a
company under section 4(f) of the BHC
Act.63 The statute also applies to any
depository institution that is described
in section 2(c)(2)(D), (F), (G), (H), (I) or
(J) of the BHC Act and, thus, excluded
from the definition of ‘‘bank’’ under the
BHC Act.64 As a result, virtually every
type of institution that is chartered as a
bank, including every ‘‘insured bank’’
(as defined in section 3 of the Federal
Deposit Insurance Act), is subject to
section 106.65 This is true whether or
not the covered depository institution is
owned or controlled by a bank holding
company registered under the BHC Act.
Section 106 also applies to any U.S.
branch, agency, or commercial lending
company of a foreign bank (as those
terms are defined in section 8 of the
International Banking Act).66 In
addition, although affiliates of a bank
63 See

12 U.S.C. 1971 and 1841(c)(1).
U.S.C. 1843(f)(9) and (h)(1). These
institutions include limited-purpose trust
companies, credit card banks, Edge Act and
Agreement corporations, and industrial loan
companies and similar institutions.
65 See 12 U.S.C. 1813.
66 See 12 U.S.C. 3106.
64 12

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generally are not subject to section 106,
the BHC Act specifically provides that
an affiliate of an institution controlled
pursuant to section 4(f) or described in
section 2(c)(2)(D), (F), (G), (H), (I), or (J)
of the BHC Act is subject to the antitying prohibitions of section 106 in
connection with any transaction
involving the products of both the
affiliate and the institution as if the
affiliate were a bank and the institution
were an affiliate.67
Section 106 also applies to most, but
not all, subsidiaries of banks. In
particular, section 106 applies to all
subsidiaries of a bank—other than a
financial subsidiary—in exactly the
same manner as the statute applies to
the bank itself. A financial subsidiary of
a national bank or a state member bank,
however, is treated as an affiliate of the
bank, and not as a subsidiary of the
bank, for purposes of the statute.68
This statement uses the term ‘‘bank’’
to refer to all entities that are subject to
section 106. As noted above, savings
associations are subject to anti-tying
restrictions that are virtually identical to
those applicable to banks under section
106.69
VI. What Is an ‘‘Affiliate’’ for Purposes
of Section 106?
Section 106 prohibits a bank from
requiring that a customer obtain any
additional product from, or provide any
additional product to, ‘‘a bank holding
company of such bank, or * * * any
other subsidiary of such bank holding
company.’’ 70 For purposes of these
restrictions, any company that controls
a bank that is subject to section 106 is
treated as a bank holding company
(even if the company is not a bank
holding company under the BHC Act),
and any subsidiary of such a company
is treated as a subsidiary of a bank
holding company.71 In addition, for
purposes of section 106, any natural
person that controls a bank that is
67 See

12 U.S.C. 1843(f)(9)(B) and (h)(2).
12 U.S.C. 1971; 12 CFR 208.73(e). Tying
arrangements imposed by a financial subsidiary of
a bank, like tying arrangements imposed by any
other affiliate of a bank, remain subject to the
general antitrust laws.
69 See 12 U.S.C. 1464(q).
70 See 12 U.S.C. 1972(1)(B) and (D). The exclusive
dealing prohibition in section 106(1)(E) similarly
prohibits a bank from requiring that a customer not
obtain an additional product from a competitor of
the ‘‘bank holding company of such bank, or any
subsidiary of such bank holding company.’’ Id. at
1972(1)(E).
71 See 12 U.S.C. 1843(f)(9) and (h)(1). A company
that controls a bank (as defined under section 2(c)
of the BHC Act) and that is not considered a bank
holding company by reason of section 2(a)(5) of the
BHC Act, however, is not considered a bank
holding company for purposes of section 106 and,
thus, is not considered an affiliate of the bank for
purposes of this statement.
68 See

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52033

subject to section 106 is treated as a
‘‘bank holding company’’ of the bank,
and any other company controlled by
such a natural person is treated as a
subsidiary of the ‘‘bank holding
company’’ of such bank.72
To reflect the scope of section 106, the
term ‘‘affiliate’’ as used in this statement
with respect to a bank means any
company or natural person that controls
the bank, and any company that is
controlled by such company or person
(other than the bank itself).
As noted previously, section 106
generally does not apply to tying
arrangements imposed by an affiliate of
a bank. However, a bank may not
participate in a transaction in which an
affiliate has nominally imposed a
condition on a customer that the bank
is prohibited from directly imposing
under section 106 if the affiliate was
acting on behalf of, as agent for, or in
conjunction with the bank. For example,
a bank should not have a prearrangement or understanding with an
affiliate to fund a syndicated loan for
which the affiliate acts as syndicate
manager if the affiliate has conditioned
the availability (or price) of its
syndication services on a requirement
that the customer obtain securities
underwriting services from the affiliate.
Similarly, if an affiliate of a bank has
conditioned the availability (or price) of
a bridge loan on a requirement that the
customer hire the bank’s securities
affiliate as an underwriter for the
company’s follow-on bond offering, the
bank should not have an arrangement or
understanding with the affiliate at the
time the bridge loan is made to purchase
the loan (or a participation in the loan)
from the affiliate.
VII. What Internal Controls Should
Banks Have to Ensure Compliance With
the Anti-Tying Prohibitions of Section
106?
The board of directors and senior
management of a bank are responsible
for ensuring that the bank establishes
and maintains an effective system of
internal controls that, among other
things, provides reasonable assurances
that the bank complies with applicable
laws and regulations, including the antitying prohibitions of section 106. An
effective system of internal controls and
a management environment that
emphasizes compliance not only helps
an organization operate in an efficient
and safe and sound manner, but also
helps mitigate the legal and reputational
risks that may arise from actual or
perceived violations of the anti-tying
prohibitions of section 106.
72 See

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Federal Register / Vol. 68, No. 168 / Friday, August 29, 2003 / Notices

A. Anti-Tying Policies, Procedures and
Systems
Banks should have policies,
procedures and systems in place that are
reasonably designed to ensure that the
bank complies with the anti-tying
prohibitions of section 106. The types of
anti-tying policies, procedures and
systems appropriate for a particular
bank depends on the size of the bank,
and the nature, scope and complexity of
the bank’s activities (including activities
conducted in conjunction with
affiliates). Banks should review and
update their anti-tying policies,
procedures and systems periodically to
ensure that these policies, procedures
and systems reflect any changes in the
nature, scope or complexity of the
bank’s activities or applicable law,
regulations or supervisory guidance.
The anti-tying policies and
procedures of banks should describe the
scope of section 106 and the types of
tying arrangements prohibited by the
statute. Banks should ensure that the
anti-tying prohibitions of section 106
are appropriately reflected or
incorporated in the institution’s
corporate policies and procedures,
including the institution’s policies and
procedures concerning credit approval,
new product approval and pricing, and
marketing.
Banks also should ensure that
appropriate bank personnel receive
education and training concerning the
anti-tying prohibitions of section 106.
The scope and frequency of the
education and training provided an
individual or department should be
tailored to the nature and scope of the
person’s or department’s functions at
the bank, with greater focus and
resources devoted to those positions or
departments that present the greatest
legal or reputational risk to the bank.
Corporate relationship managers,
syndicated lending personnel, persons
with authority to approve credit
extensions or establish pricing policies
for the bank and other personnel that
have direct contact with customers for
purposes of marketing or selling the
bank’s products, for example, should
receive comprehensive and regular antitying training.73
In addition, the policies and
procedures of a bank should—
• Permit personnel with questions
concerning section 106 or its
application to a particular transaction to
discuss the issue with an appropriate
73 Banks

also should review their employee
compensation programs in order to ensure that such
programs do not provide employees inappropriate
incentives to tie products in a manner prohibited
by section 106.

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representative of the institution’s
compliance or legal department;
• Include procedures for the receipt,
handling and resolution of customer
complaints alleging a violation of
section 106 by the bank; and
• Prohibit the bank or any employee
of the bank from taking adverse action
against a customer because the customer
submitted a complaint to the bank or a
Federal banking agency alleging a
violation of section 106 by the bank.
A bank’s compliance function should
take a lead role in monitoring the bank’s
compliance with section 106.
Appropriate compliance activities may
include reviewing periodically the
bank’s policies and procedures to
ensure they are updated as necessary to
reflect changes in the bank’s business or
applicable laws, regulations or
supervisory guidance and conducting
training sessions for appropriate bank
personnel. The compliance function
also should review the bank’s marketing
materials and individual transactions to
test the bank’s compliance with the antitying restrictions of section 106. In
performing such tests, compliance
personnel typically should review the
documentation associated with the
transaction and discuss the transaction
with the relevant bank personnel
involved in the transaction.
Internal audit also plays an important
role in ensuring a bank’s compliance
with the anti-tying restrictions. A bank’s
internal audit function should
periodically review and test the
institution’s anti-tying policies,
procedures and systems in order to
confirm that they are working
effectively and in the manner intended.
The appropriate scope and frequency of
these reviews and tests will depend on
the size, nature and complexity of the
bank’s business operations and the
effectiveness of the bank’s compliance
function. Thus, for example, if the
bank’s compliance function properly
conducts transaction testing on a regular
basis, the bank’s internal audit reviews
may focus on reviewing the adequacy of
the bank’s policies and procedures and
validating the compliance function’s
work. Banks should ensure that the
compliance and internal audit
personnel responsible for monitoring
and assessing the institution’s
compliance with section 106 are well
trained with respect to the anti-tying
rules.
B. Internal Control and Recordkeeping
Requirements for Banks Offering MixedProduct Arrangements Outside a
Regulatory Safe Harbor
As discussed above, a bank may offer
a mixed-product arrangement under

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which the bank provides the customer
the option of satisfying a condition
imposed by the bank through the
purchase of traditional bank products or
non-traditional products where the
customer has a meaningful option to
satisfy the condition solely through the
purchase of traditional bank products.74
Because mixed-product arrangements
present special compliance issues under
section 106, the anti-tying policies,
procedures and systems of a bank
offering a mixed-product arrangement
play a particularly important role in
demonstrating and ensuring that the
bank’s actions with respect to these
arrangements are consistent with
section 106. Accordingly, in conducting
anti-tying compliance reviews at
banking organizations, the Board
expects to carefully review the antitying policies, procedures and systems
used by banks that offer mixed-product
arrangements.
A bank’s policies, procedures and
documentation should reflect how the
bank will and does establish a good
faith belief that a customer offered a
mixed-product arrangement would be
able to satisfy the condition associated
with the arrangement solely through the
purchase of traditional bank products.
For example, the bank’s policies,
procedures and documentation
generally should address—
• The factors and types of
information that the bank will review in
forming a good faith belief that any
customer offered a mixed-product
arrangement has a meaningful option to
satisfy the bank s condition solely
through the purchase of one or more of
the traditional bank products included
in the arrangement. Information relevant
to this determination may include:
• The range and types of traditional
bank products that are offered by the
bank and its affiliates and included in
the mixed-product arrangement;
• The manner in which traditional
bank products and non-traditional
products are treated for purposes of
determining whether a customer has or
would meet the condition associated
with the arrangement; 75
• The types and amounts of
traditional bank products typically
required or obtained by companies that
are comparable in size, credit quality,
and nature, scope and complexity of
business operations to the customer;
and
74 See

Part IV.A.2.
mixed-product arrangements, banks may not
weight, discourage the use of, or otherwise treat
traditional bank products in a manner that is
designed to deprive customers of a meaningful
choice.
75 In

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Federal Register / Vol. 68, No. 168 / Friday, August 29, 2003 / Notices
• Information provided by the
customer concerning the types and
amounts of traditional bank products
needed or desired by the customer and
the customer s ability to obtain those
products from the bank or its affiliates;
and
• The bank personnel authorized to
make the analysis described above for
individual customers or classes of
customers and the training and
guidelines provided these personnel;
and
• The internal processes and controls,
including approval and documentation
requirements, the bank uses to ensure
that the analysis described above is (i)
performed by the bank for a customer
before the customer is offered a mixedproduct arrangement and (ii) adequately
reflected in the records of the bank.
The bank’s policies and procedures
also should ensure that any material
information relied on by the bank in
analyzing the types and amounts of
traditional bank products likely
required by a customer is current and
reliable, and that the assessment of a
customer’s ability to satisfy the
condition associated with a mixedproduct arrangement solely through the
purchase of traditional bank products is
made prior to, and reasonably current
with, the time the arrangement is
offered to the customer.
The types and amount of information
and level of analysis necessary for a
bank to establish a good faith belief that
a customer has a meaningful choice
under a mixed-product arrangement
may vary depending on the nature and
characteristics of the arrangement and
the types of customer(s) to which it is
offered. For example, a less detailed and
granular review likely would be
required for a bank to establish a good
faith belief that a large, complex
company has a meaningful option of
satisfying a condition solely through the
purchase of traditional bank products
than a smaller company with less
complex business operations. In
addition, a less detailed review likely
would be necessary for a bank to
develop a good faith estimate of the
need for traditional bank products of an
existing customer with a long history
with the bank than of a potential
customer or a customer with only a brief
relationship with the bank.
C. Ability of Banks to Offer MixedProduct Arrangements to Individuals
Bank products directed to individuals
typically are standardized. Although
such standardization may allow the
product to be offered economically to
large numbers of individual customers,
it also means that the terms of the

product typically are not modified to
the same extent as with corporate
customers to reflect the specific needs
and resources of the customer.
Furthermore, because individuals
typically have less bargaining power
and may be less financially
sophisticated, individuals may be more
susceptible to subtle pressure by a bank
that encourages the customer to
purchase a non-traditional product from
the bank or an affiliate. The potential for
such subtle pressure to be applied in a
manner that is both effective and
difficult to uncover is particularly
strong in mixed-product arrangements
because these arrangements include
both traditional bank products and nontraditional products and individuals
often believe that they do not have (and,
in fact, may not have) the ability to
negotiate with a bank. These facts make
it difficult for a bank to establish a good
faith belief that a mixed-product
arrangement provides an individual a
meaningful option to satisfy the
condition associated with the
arrangement solely through the
purchase of traditional bank products
without a detailed and, in many cases,
uneconomical analysis of the financial
needs and capabilities of each
individual offered the arrangement.
The Board recognizes that section 106
limits the ability of banking
organizations to provide individual
consumers with discounts on packages
of bundled products and, thus, pass
along the cost savings that may arise
from bundled offerings in ways that are
both pro-consumer and not anticompetitive. It was in part to allow
banks some flexibility to provide
individual consumers with the benefits
of discounts on bundled offerings that
the Board in 1995 exercised its
exemptive authority to adopt a safeharbor for combined-balance discount
programs, which are a type of mixedproduct arrangement that typically are
marketed to individuals.76 Moreover,
the Board notes that section 106 does
not impede the ability of a bank to
provide individual consumers with
discounts on packages of bundled
traditional bank products and does not
restrict the ability of a nonbank affiliate
of a bank to offer mixed-product
arrangements to individual consumers.
76 This exception, which is discussed in Part
IV.D, allows banks to offer certain combinedbalance discount programs to individuals without
making a specific determination that the particular
customer has a meaningful option of qualifying for
the discounts within the program solely through the
use of the deposit products (a traditional bank
product) included in the program. See 12 CFR
225.7(b)(2).

52035

By order of the Board of Governors of the
Federal Reserve System, August 25, 2003.
Jennifer J. Johnson,
Secretary of the Board.
[FR Doc. 03–22091 Filed 8–28–03; 8:45 am]
BILLING CODE 6210–02–P

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