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FED ERAL RESERVE BANK OF DALLAS D ALLAS. TEXAS August 1,1966 AMENDMENT TO REGULATION R “ RELATIONSHIPS WITH DEALERS IN SECURITIES UNDER SECTION 32 OF THE BANKING ACT OF 1933” To All Member Banks and Others Concerned in the Eleventh Federal Reserve District: The Board of Governors o f the Federal Reserve System has amended Regulation R, “ Relationships With Dealers in Securities Under Section 32 of the Banking Act of 1933” , effective July 11, 1966, by adding securities issued by the Asian Development Bank to those which are eligible for the exception provided by section 218.2 of the Regulation. Attached is a copy o f the Regulation as amended effective July 11, 1966. Member banks are requested to substitute the revised Regulation in the ring binders containing the Regula tions of the Board o f Governors and the Bulletins o f this bank. The Regulation as amended March 29,1966, should be destroyed. Yours very truly, Watrous H. Irons President This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org) BOARD OF GOVERNORS o f the FEDERAL RESERVE SYSTEM RELATIONSHIPS WITH DEALERS IN SECURITIES UNDER SECTION 32 OF THE BANKING ACT OF 1933 ▼ REGULATION R (1 2 CFR 218) As Amended Effective July 11, 1966 INQUIRIES WITH RESPECT TO THIS REGULATION A ny inquiry relating to this regulation should be addressed to the Federal Reserve bank o f the Federal Reserve district in which the inquiry arises. REGULATION R (12 CFR 218) As Amended Effective July 11, 1966 RELATIONSHIPS WITH DEALERS IN SECURITIES UNDER SECTION 32 OF THE BANKING ACT OF 1933 * SECTION 218.1— PROHIBITIONS Under section 32 o f the Banking Act of 1933 (49 Stat. 709; 12 U.S.C. 78), except as stated in section 218.2, no officer, direc tor, or employee o f any corporation or unincorporated associa tion, no partner or employee o f any partnership, and no individ ual primarily engaged in the issue, flotation, underwriting, public sale, or distribution, at wholesale or retail, or through syndicate participation, o f stocks, bonds, or other similar secur ities, can legally be at the same time an officer, director, or employee of any member bank o f the Federal Reserve System.1 SECTION 218.2— EXCEPTIONS Pursuant to the authority vested in it by section 32, the Board o f Governors o f the Federal Reserve System hereby grants per mission 2 fo r any officer, director, or employee o f any member * This text corresponds to the Code o f Federal Regulations, T itle 12,Chapter II, P art 218; cited as 12 C FR 218. The words "th is P a rt", as used herein, mean Regulation R. 1 Therefore, by its term s, section 32 does not apply— (a ) T o a person who is not an officer, director, or em ployee o f a Federal Reserve System ; member bank o f the (b ) T o a person (1 ) who is not an officer, director, o r em ployee o f a corporation o r unincorporated association prim arily engaged in the issue, flotation, underw riting, public sale or distribution, at wholesale or retail, or through syndicate participation, o f stocks, bonds o r other similar securities, (2 ) w ho is not a partner o r em ployee o f a partnership prim arily so engaged, and (3 ) who is not, in his individual capacity, prim arily so engaged. A broker w ho is engaged solely in executing orders fo r the purchase and sale o f secu rities on behalf o f others in the open m arket is not engaged in the business referred to in section 32. 3 Under section 32, ns amended effective January 1, 1936 (49 Stat. 709; 12 U .S.C. 7 8), the Board is authorized to except limited classes o f relationships from the prohibitions o f the statute, under certain conditions: but the Board can make such exceptions only by general regulations and is not authorized to issue individual permits. 2 R E G U L A T IO N R SECS. 218.2-218.3 bank o f the Federal Reserve System, unless otherwise pro hibited,3 to be at the same time an officer, director, or employee o f any corporation or unincorporated association, a partner or employee o f any partnership, or an individual, engaged in the issue, flotation, underwriting, public sale, or distribution, at wholesale or retail, or through syndicate participation, o f any stocks, bonds, or other similar securities, if so engaged only as to the following securities: bonds, notes, certificates o f indebted ness, and Treasury bills o f the United States; obligations fully guaranteed both as to principal and interest by the United States; general obligations o f Territories, dependencies, and insular possessions o f the United States; obligations o f Federal Intermediate Credit banks, Federal Land banks, Central Bank fo r Cooperatives, Federal Home Loan banks, the Federal Na tional Mortgage Association, and the Tennessee Valley Author ity; certificates o f interest o f the Commodity Credit Corporation; and, subject to specifications contained in paragraph Seventh o f Section 5136, Revised Statutes (12 U.S.C. 24), obligations o f the International Bank for Reconstruction and Development, the Inter-American Development Bank, the Asian Development Bank, local public agencies, public housing agencies, and obliga tions insured by the Federal Housing Administrator. SECTION 218.3— AMENDMENTS The right to alter, amend, or repeal this Part, in whole or in part, is expressly reserved. J Section 8 o f the Clayton A ct (38 Stat. 732. 49 Stat. 718; 15 U.S.C. 19) is applicable in certain circum stances to interlocking relationships between member banks and private bankers, and other banks, banking associations, savings banks and trust com panies. See Part 212 o f this Chapter. Section 17 (c ) o f the Public U tility A ct o f 1935 (49 Stat. 831; 15 U.S.C. 7 9 q ( c ) ) is applicable in certain circum stances to interlocking relationships between banks and private bankers (and corporations owned by banks and private b a n k ers), and public utility com panies and public utility holding com panies. Inquiries regarding this section should be addressed to the Securities and Exchange Commission and not to the Board o f Governors o f the Federal Reserve System. Section 1 0 (c ) o f the Investm ent Com pany A ct o f 1940 (54 Stat. 806; 15 U .S.C . 80a1 0 ( c ) ) is applicable in certain circum stances to interlocking relationships between banks and registered investment com panies. Inquiries regarding this section should be addressed to the Securities and E xch an ge Commission and not to the Board o f Governors o f the Federal Reserve System. Section 3 06 (b ) o f the Federal Pow er A ct (49 Stat. 866; 16 U.S.C. 8 2 5 d (b )) is applicable in certain circum stances to interlocking relationships between public utility com panies and banks and bankers that are authorized by law to underwrite o r participate in the m arketing o f securities o f a public utility. Inquiries regarding this section should be addressed to the Federal Pow er Commission and not to the Board o f Governors o f the Federal Reserve System. 3 AP P E N D IX STATUTORY PROVISIONS Section 32 o f the Banking A ct of 1933 (12 U.S.C. 78) reads as follows: Sec. 32. No officer, director, or employee o f any corpora tion or unincorporated association, no partner or employee of any partnership, and no individual, primarily engaged in the issue, flotation, underwriting, public sale, or distribution, at wholesale or retail, or through syndicate participation, of stocks, bonds, or other similar securities, shall serve * the same time as an officer, director, or employee o f any member bank except in limited classes o f cases in which the Board o f Governors o f the Federal Reserve System may allow such service by general regulations when in the judgment of the said Board it would not unduly influence the investment policies o f such member bank or the advice it gives its cus tomers regarding investments. Paragraph “ Seventh” of Section 5136, Revised Statutes (12 U.S.C. 24) reads as follows: Seventh. To exercise by its board o f directors or duly au thorized officers or agents, subject to law, all such incidental powers as shall be necessary to carry on the business o f bank ing; by discounting and negotiating promissory notes, drafts, bills o f exchange, and other evidences o f debt; by receiving deposits; by buying and selling exchange, coin, and bullion; by loaning money on personal security; and by obtaining, issuing, and circulating notes according to the provisions of this chapter. The business o f dealing in securities and stock by the association shall be limited to purchasing and selling such securities and stock without recourse, solely upon the order, and fo r the account of, customers, and in no case for its own account, and the association shall not underwrite any issue of securities or stock: Provided, That the association may purchase fo r its own account investment securities under such limitations and restrictions as the Comptroller of the Currency may by regulation prescribe. In no event shall the total amount o f the investment securities o f any one obligor or maker, held by the association fo r its own account, exceed *So in statute as enacted. 4 R E G U L A T IO N R at any time 10 per centum o f its capital stock actually paid in and unimpaired and 10 per centum o f its unimpaired surplus fund, except that this limitation shall not require any associa tion to dispose o f any securities lawfully held by it on August 23, 1935. As used in this section the term “ investment secu rities” shall mean marketable obligations, evidencing indebted ness o f any person, copartnership, association, or corporation in the form o f bonds, notes an d/or debentures commonly known as investment securities under such further definition o f the term “ investment securities” as may by regulation be prescribed by the Comptroller o f the Currency. Except as hereinafter provided or otherwise permitted by law, nothing herein contained shall authorize the purchase by the associa tion for its own account o f any shares o f stock of any corpora tion. The limitations and restrictions herein contained as to dealing in, underwriting and purchasing for its own account, investment securities shall not apply to obligations o f the United States, or general obligations o f any State or o f any political subdivision thereof, or obligations issued under au thority o f the Federal Farm Loan Act, as amended, or issued by the thirteen banks for cooperatives o f any o f them or the Federal Home Loan Banks, or obligations which are insured by the Federal Housing Administrator pursuant to section 1713 o f this title, if the debentures to be issued in payment o f such insured obligations are guaranteed as to principal and interest by the United States, or obligations, participa tions, or other instruments o f or issued by the Federal Na tional Mortgage Association, or such obligations of any local public agency (as defined in section 1460(h) o f Title 42) as are secured by an agreement between the local public agency and the Housing and Home Finance Administrator in which the local public agency agrees to borrow from said Ad ministrator, and said Administrator agrees to lend to said local public agency, monies in an aggregate amount which (together with any other monies irrevocably committed to the payment o f interest or such obligations) will suffice to pay, when due, the interest on and all installments (including the final installment) of the principal o f such obligations, which monies under the terms o f said agreement are required to be used fo r such payments, or such obligations o f a public hous ing agency (as defined in the United States Housing A ct of 1937, as amended) as are secured either (1) by an agree ment between the public housing agency and the Public Hous- R E G U L A T IO N R 5 ing Administration in which the public housing agency agrees to borrow from the Public Housing Administration, and the Public Housing Administration agrees to lend to the public housing agency, prior to the maturity of such obligations (which obligations shall have a maturity of not more than eighteen m onths), monies in an amount which (together with any other monies irrevocably committed to the payment of interest on such obligations) will suffice to pay the principal o f such obligations with interest to maturity thereon, which monies under the terms o f said agreement are required to be used for the purpose o f paying the principal of and the inter est on such obligations at their maturity, or (2) by a pledge o f annual contributions under an annual contributions con tract between such public housing agency and the Public Housing Administration i f such contract shall contain the covenant by the Public Housing Administration which is au thorized by section 1421a (b) o f Title 42, and if the maximum sum and the maximum period specified in such contract pur suant to section 1421a (b) o f Title 42 shall not be less than the annual amount and the period for payment which are requisite to provide fo r the payment when due of all install ments o f principal and interest on such obligations: Provided, That in carrying on the business commonly known as the safe-deposit business the association shall not invest in the capital stock o f a corporation organized under the law o f any State to conduct a safe-deposit business in an amount in excess o f 15 per centum o f the capital stock o f the association actual ly paid in and unimpaired and 15 per centum o f its unim paired surplus. The limitations and restrictions herein con tained as to dealing in and underwriting investment securities shall not apply to obligations issued by the International Bank for Reconstruction and Development, the Inter-American De velopment Bank or the Asian Development Bank which are at the time eligible for purchase by a national bank fo r its own account, nor to bonds, notes and other obligations issued by the Tennessee Valley Authority: Provided, That no associa tion shall hold obligations issued by any o f said organizations as a result o f underwriting, dealing, or purchasing fo r its own account (and fo r this purpose obligations as to which it is under commitment shall be deemed to be held by it) in a total amount exceeding at any one time 10 per centum of its capital stock actually paid in and unimpaired and 10 per centum o f its unimpaired surplus fund.
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