The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
Federal
reserve
Ban k
DALLAS, TEXAS
of
Dallas
75222
Circular No. 71-126
May 28, 1971
AMENDMENTS TO REGULATION Y
(Activities "closely related to banking")
To All Banks and Others Concerned
in the Eleventh. Federal Reserve District:
The Board of Governors of the Federal Reserve System on
May 27j 1971? announced amendments to section 222.^ of Regulation Y
("Bank Holding Companies"), setting out seven activities construed
to be "closely related to banking or managing or controlling banks"
under section ^-(c)(8 ) of the Bank Holding Company Act, and thus
permissible for bank holding companies, subject to Board approval
in individual cases.
The previously proposed activities relating to insurance
activities and data processing are still under consideration. The
new amendments, which become effective June 15, 1971? also specify
the conditions to which acquisitions will be subject, and set forth
procedures the Board will follow in processing applications filed
under section ^(c)(8 ).
In a separate action, the Board also amended its "Rules
Regarding Delegation of Authority", delegating to the Reserve banks
the responsibility for administering applications filed under
section l+(c)(8 ) involving newly formed subsidiaries.
Enclosed is a copy of the Boardfs press release, copies
of the amendments described above, and an interpretation by the
Board expressing views on several questions which arose during
consideration of the above matters.
Also enclosed are copies of forms to be used by companies
seeking acquisitions under section if(c)(8 ), and forms to be used for
certain required newspaper publication notices.
Printed copies of the amendments will be furnished at a
later date for inclusion in binders of Federal Reserve Regulations
furnished to all member banks.
Yours very truly,
P. E. Coldwell
Enclosures
President
This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org)
For release in morning papers
Friday, May 28, 1971
May 27, 1971
The Board of Governors of the Federal Reserve System today
announced amendments to its bank holding company regulation to imple
ment, in part, those portions of the "Bank Holding Company Amendments
of 1970" that permit expansion of such companies into activities closely
related to banking.
The regulatory amendments, effective June 15, list seven
activities that the Board has found to be closely related to banking,
or managing or controlling banks, and thus permissible for bank holding
companies subject to Board approval in individual cases.
The amendments
also spell out the procedures to be followed by the Board in processing
applications by individual companies that are filed under Section 4(c)8
of the Bank Holding Company Act.
Under the amendments, a bank holding company may apply to the
Federal Reserve for permission to retain or acquire an interest in a
company that engages solely in one or more of the following activities:
1.
Making or acquiring, for its own account or for the
account of others, loans and other extensions of credit (including
issuing letters of credit and accepting drafts), such as would be made,
for example, by a mortgage, finance, credit card, or factoring company.
2.
Operating as an industrial bank, Morris Plan bank, or in
dustrial loan company in the manner authorized by State law so long as
the institution does not both accept demand deposits and make commercial
loans•
-2-
3.
Servicing loans and other extensions of credit for any
4.
Performing or carrying on any one or more of the functions
person.
or activities that may be performed or carried on by a trust company
(including activities of a fiduciary, agency, or custodian nature), in
the manner authorized by State law so long as the institution does not
both accept demand deposits and make commercial loans.
5.
Acting as investment or financial adviser, including
(a) serving as the advisory company for a mortgage or a real estate
investment trust and (b) furnishing economic or financial information.
6.
Leasing personal property and equipment, or acting as
agent, broker, or adviser in leasing of such property, where at the
inception of the initial lease the expectation is that the effect of
the transaction and reasonably anticipated future transactions with the
same lessee as to the same property will be to compensate the lessor for
not less than the lessor's full investment in the property.
7.
Making equity and debt investments in corporations or
projects designed primarily to promote community welfare, such as the
economic rehabilitation and development of low-income areas.
These seven activities are substantially the same as the ones
proposed by the Board on January 25, 1971, when it announced plans to
amend its Bank Holding Company Regulation Y as a first step toward im
plementing the 1970 amendments.
Changes made in the original proposal
are technical in nature or designed to clarify the Board's intent in
view of public comments received since January in written form and in
public hearings.
-3-
Three other proposed activities listed by the Board last
January--two relating to insurance activities and a third to data
processing--are still under consideration.
The permissible activi
ties do not include operating as a savings and loan association,
acting as investment advisor to an open-end investment company or as
a management consultant, or investing in an industrial development
corporation.
The Board is considering whether to propose adding these
and other activities to the list.
Under the original Bank Holding Company Act of 1956, only
those holding companies that controlled 25 per cent or more of the
voting stock of two or more banks were required to register with the
Federal Reserve and limit their activities to banking and closely re
lated activities.
In the 1970 amendments, Congress expanded the Act
to cover companies that control only one bank, gave the Board greater
latitude to determine when control exists, and amended other parts of
the Act under which bank holding companies may engage in bank-related
activities.
Companies covered by the 1970 amendments must register with
the Federal Reserve by June 29, 1971.
In listing activities regarded as closely related to banking,
the Board partially implemented Section 4(c)8 of the Act which states,
in part, that a bank holding company may acquire "shares of any company
the activities of which the Board after due notice and opportunity for
hearing has determined (by order or regulation) to be so closely related
to banking or managing or controlling banks as to be a proper incident
there to.1*
4The regulatory amendments do not limit the location of a
permissible activity to any State or other geographical area but
limitations may be imposed by order in individual cases.
Under procedures spelled out by the Board, a bank holding
company desiring to engage in one of the permissible activities through
a newly formed ("de novo") subsidiary must furnish the district Federal
Reserve Bank with a copy of a notice of its proposal that was published
within the preceding 30 days in a newspaper of general circulation in
the communities to be served by that subsidiary.
The holding company
may engage in the activity 45 days after the notice is filed with the
Federal Reserve unless the company is notified to the contrary within
that time.
In exigent circumstances a holding company might be permitted
to begin such activity before expiration of the 45-day period.
A bank holding company desiring to acquire an established
company engaged in a permissible activity must file an application with
its Reserve Bank.
This application must be accompanied by a copy of
notice of the proposal that was published within the preceding 30 days
in a general circulation newspaper in the communities to be served.
The
Board will publish notice in the Federal Register of any application to
acquire or retain an interest in a going concern and will give interested
persons an opportunity to express views, including by means of a hearing
where appropriate, on the question whether the activity proposed can be
expected to produce public benefits that outweigh possible adverse effects.
Any bank holding company may apply to the Board to engage in
an activity not included specifically in the Regulation if it is of the
-5opinion that the activity is closely related to banking or managing or
controlling banks.
Applications of this type will be processed under
the same procedures as applications to acquire a going concern engaged
in one of the specified activities.
However, the Board will publish
a notice of opportunity for hearing only if it believes that there is
a reasonable basis for the holding company's opinion that the activity
applied for is closely related to banking.
The regulation specifies that each acquisition under Section
4(c)8 of the Act will be subject to these three conditions:
1.
Services shall not be tied in to services of a holding
company's banking subsidiaries, or otherwise conditioned in a manner
that if offered by a bank would violate the provisions of section 106
of the 1970 amendments.
2.
Activities shall not be altered in any significant respect
from those considered by the Board.
3.
The company acquired by a bank holding company must receive
prior Board approval of any merger or acquisition of assets if the
holding company will continue to own--directly or indirectly--more than
five per cent of the voting shares of the subsidiary or its successor*
In a separate action, the Board delegated to the Reserve Banks
the basic responsibility for administering applications filed under
Section 4(c)8 as it relates to activities commenced through a newly
formed (de novo) subsidiary*
The Board also delegated to the Reserve Banks the authority
to determine when a proposal filed under Section 4(c)12 of the Act and
- 6-
Regulation Y should be suspended for additional inquiry or Board
determination.
That section permits a company covered by the 1970
amendments to acquire shares of any company--subject to conditions
prescribed by the Board--so long as it divests itself by January 1,
1981, of either its bank or of activities unrelated to banking.
Under
regulatory amendments announced earlier by the Board, a company that
files an irrevocable declaration that it will cease to be a bank holding
company by January 1, 1981, may acquire subsidiaries under a simplified
procedure.
The Board also approved the application form to be used by
a company seeking to make an acquisition under Section 4(c)8.
This
form--F.R. Y-4--is to be used by bank holding companies applying to
acquire a going concern or where the activity to be acquired has not
been determined by Board regulation to be closely related to banking.
Copies of the form will be available at the Reserve Banks.
Attached are copies of the regulatory amendments approved by
the Board, the forms to be used for newspaper publication of notice to
establish, acquire, or retain a bank-related activity, and an interpre
tation relating to acquisitions to be made under Section 4(c)8.
0-
TITLE 12— BANKS AND BANKING
CHAPTER II— FEDERAL RESERVE SYSTEM
SUBCHAPTER A — BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
[Reg. Y]
PART 222— BANK HOLDING COMPANIES
Nonbanking Activities of Bank Holding Companies
By notice of proposed rule making published in the Federal
Register on January 29, 1971 (36 F.R. 1430), the Board of Governors
proposed to implement its regulatory authority under section 4(c)(8)
of the Bank Holding Company Act to permit holding companies to engage
directly or through a subsidiary in activities that are "so closely
related to banking or managing or controlling banks as to be a proper
incident thereto."
A hearing was held before members of the Board on
April 14, 1971, regarding all Issues raised by the proposals, except
the extent to which data processing and insurance agency activities
are closely related to banking.
Following consideration of the comments received and the
record of the hearing, as its initial Implementation of its authority
under § 4(c)(8) of the Act as revised by the 1970 amendments to the
Act, the Board has amended § 222.4(a), (b), and (c) of Regulation Y to
read as set forth below, effective June 15, 1971.
(b) and (c) were nonsubstantive.)
(Former paragraphs
An accompanying interpretation ex
presses the Board's views on several questions that arose during the
course of its consideration of this matter.
- 2*
§ 222,4
Nonbanking activities.
(a)
Activities closely related to banking or managing or
controlling banks.
In accordance with the procedures set £orth in
paragraphs (b) and (c) of this section, any bank holding company may
engage, or retain or acquire an interest in a company that engages,
solely in one or more of the activities specified below, including
such incidental activities as are necessary to carry on the activities
so specified.
Any bank holding company that is of the opinion that
other activities in the circumstances surrounding a particular case are
closely related to banking or managing or controlling banks may file
an application in accordance with the procedures set forth in para
graph (b)(2).
As to such an application, the Board will publish in
the Federal Register a notice of opportunity for hearing only if it
believes that there is a reasonable basis for the holding company's
opinion.
The following activities have been determined by the Board
to be so closely related to banking or managing or controlling banks
as to be a proper incident thereto:
(1)
making or acquiring, for its own account or for the
account of others, loans and other extensions of credit (including
issuing letters of credit and accepting drafts), such as would be
made, for example, by a mortgage, finance, credit card, or factoring
company;
*/
* Operating a savings and loan association is not regarded by the
Board as within the description of this activity. Whether to propose
expanding activity (2) to include operating that type of financial
institution is under consideration by the Board.
(2) operating as an industrial bank, Morris Plan bank, or
industrial loan company, in the manner authorized by State law so
long as the institution does not both accept demand deposits and
make commercial loans;
(3) servicing loans and other extensions of credit for
any person;
(4) performing or carrying on any one or more of the func
tions or activities that may be performed or carried on by a trust
company (including activities of a fiduciary, agency, or custodian
nature), in the manner authorized by State law so long as the insti
tution does not both accept demand deposits and make commercial loans;
(5) acting as investment or financial adviser, including
(i) serving as the advisory company for a mortgage or a real estate
investment trust and (ii) furnishing economic or financial information
(6) leasing personal property and equipment, or acting as
agent, broker, or adviser in leasing of such property, where at the
inception of the initial lease the expectation is that the effect of
the transaction and reasonably anticipated future transactions with
the same lessee as to the same property will be to compensate the
lessor for not less than the lessor's full investment in the property;
** Acting as investment adviser to an open-end investment company or
as a management consultant is not regarded by the Board as within the
description of this activity, Whether to propose expanding activity
(5) to include acting in either or both of those capacities is under
consideration by the Board.
-4 (7)
making equity and debt investments in corporations or
projects designed primarily to promote community welfare, such as the
***/
economic rehabilitation and development of low*income areas.—
(b)(1) De novo entry.
A bank holding company may engage
de novo (or continue to engage in an activity earlier commenced
de novo) directly or indirectly, solely in activities described in
paragraph (a), 45 days after the company has furnished its Reserve
Bank with a copy of a notice of the proposal (in substantially the
same form as F.R, Y-4A) published within the preceding 30 days in a
newspaper of general circulation in the communities to be served,
unless the company is notified to the contrary within that time or
unless it is permitted to consummate the transaction at an earlier
date on the basis of exigent circumstances of a particular case.
If adverse comments of a substantive nature are received by the
Reserve Bank within 30 days after the company has so published its
, 1/
proposal,
or if it otherwise appears appropriate in a particular
case, the Reserve Bank may inform the company that (i) the proposal
shall not be consummated until specifically authorized by the Reserve
Bank or by the Board or (ii) the proposal should be processed in
accordance with the procedures of subparagraph (2).
*** Investing in an industrial development corporation is not regarded
by the Board as within the deacription of this activity. Whether to
propose adding that and other activities to the list in under consid
eration.
\ J If a Reserve Bank decides that adverse comments are not of a sub
stantive nature, the person submitting the comments may request review
by the Board of that decision in accordance with the provisions of
§ 265.3 of the Board's Rules Regarding Delegation of Authority (12 CFR
265.3) by filing a petition for review with the Secretary of the Board.
5 -
(2)
Acquisition of going concern.
A bank holding company
may apply to the Board to acquire or retain the assets of or shares
in a company engaged solely in activities described in paragraph (a)
by filing an application with its Reserve Bank (Form F.R. Y-4).
Every such application shall be accompanied by a copy of a notice
of the proposal (in substantially the same form as F.R. Y-4B)
published within the preceding 30 days in a newspaper of general
circulation in the communities to be served.
The Board will publish
in the Federal Register notice of any such application and will give
interested persons an opportunity to express their views (including,
where appropriate, by means of a hearing) on the question whether
performance of the activity proposed by the holding company can reason
ably be expected to produce benefits to the public, such as greater
convenience, increased competition, or gains in efficiency, that
outweigh possible adverse effects, such as undue concentration of
resources, decreased or unfair competition, conflicts of interests,
or unsound banking practices*
(c)
Tie-ins, alterations, relocations, consolidations.
as otherwise provided in an order in a particular case, the following
conditions shall apply with respect to every acquisition consummated
or activity engaged in on the authority of § 4(c)(8) of the Act:
(1) the provision of any credit, property or services involved shall
not be subject to any condition which, if imposed by a bank, would
constitute an unlawful tie-in arrangement under section 106 of the
Except
■ 6•
Bank Holding Company Act Amendments of 1970; (2) the activities
involved shall not be altered in any significant respect from those
considered by the Board in making the determination, nor provided
at any location other than those described in the notice published
with respect to such determination, except upon compliance with the
procedures of paragraph (b)(1); and (3) no merger, or acquisition of
assets other than in the ordinary course of business, to which the
acquired company is a party shall be consummated without prior Board
approval, if thereafter the bank holding company will continue to
own, directly or indirectly, more than five per cent of the voting
shares of such company or its successor.
Effective date.
June 15, 1971
By order of the Board of Governors, May 20, 1971.
(Signed) Kenneth A. Kenyon
Kenneth A. Kenyon
Deputy Secretary
[SEAL]
TITLE 12— BANKS AND BANKING
CHAPTER II— FEDERAL RESERVE SYSTEM
SUBCHAPTER A — BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
[Reg* Y]
PART 222— BANK HOLDING COMPANIES
Nonbanking Activities of Bank Holding Companies
§ 222*123
Activities closely related to banking.
(a) Effective June 15, 1971, the Board of Governors has
amended § 222»4(a) of Regulation Y to implement its regulatory
authority under § 4(c)(8) of the Bank Holding Company Act*
In some
respects activities determined by the Board to be closely related
to banking are described in general terms that will require inter
pretation from time to time.
The Board's views on some questions
that have arisen are set forth below*
(b) Section 222*4(a) states that a company whose ownership
by a bank holding company is authorized on the basis of that section
may engage solely in specified activities.
That limitation refers
only to activities the authority for which depends on § 4(c)(8)
of the Act.
It does not prevent a holding company from establishing
one subsidiary to engage, for example, in activities specified in
§ 222.4(a) and also in activities that fall within the scope of
8 4(c)(1)(C) of the Act— the "servicing" exemption*
(c) The amendments to § 222.4(a) do not apply to restrict
the activities of a company previously approved by the Board on the
basis of § 4(c)(8) of the Act*
Activities of a company authorized
2
on the basis of § 4(c)(8) either before the 1970 Amendments or pur
suant to the amended § 222.4(a) may be shifted in a corporate reorga
nization to another company within the holding company system without
complying with the procedures of § 222.4(b), as long as all the
activities of such company are permissible under one of the exemptions
in section 4.
(d)
Permissible leasing activities are limited to trans
actions where the lease is the functional equivalent of an extension
of credit to the leasee.
Accordingly, a company may engage in leasing
under § 222.4(a) if, at the time of the acquisition of the property
by the lessor, there is a lease agreement that will yield a return
from (1) rentals, (2) estimated salvage value at the end of the
minimum useful life allowed by the Internal Revenue Service, and
(3) estimated tax benefits (investment tax credit and tax deferral
from accelerated depreciation) that would result in full recovery of
the leseor's acquisition cost.
The Board understands that by law
some municipal corporations may not enter into a lease for a period
in excess of one year.
Such an impediment does not disqualify a
company authorized under § 222.4(a) from entering into a lease with
the municipality if the company reasonably anticipates that the
municipality will renew the lease annually until such time as the
company is fully compensated for its investment in the leased property.
A company authorized under § 222.4(a) may also engage in so-called
"bridge" lease financing where the lease is short term pending com
pletion of long-term financing, by the same or another lender*
- 3(e) The authority of holding companies under § 222.4(a)
to invest in corporations designed to promote the welfare of their
community is intended to permit holding companies to fulfill their
civic responsibilities.
Under that authority a holding company
may invest in community development corporations established pursuant
to Federal or State law.
It may also participate in other civic
projects, such as a municipal parking facility sponsored by a local
civic organization as a means to promote greater use by the public
of the community's facilities*
It does not, however, authorize
investments (for example, ownership of an apartment complex) that
are entered into to a substantial extent for profit even though to
some extent the investment will benefit the community.
(f) Under the procedures in § 222.4(c), a holding company
that wishes to change the location at which it engages in activities
authorized pursuant to § 222.4(a) must publish notice in a newspaper
of general circulation in the community to be served.
The Board does
not regard minor changes in location as within the coverage of that
requirement.
A move from one site to another within a one mile radius
would constitute such a minor change if the new site is in the same
State.
(Interprets and applies 12 U.S.C. 1843(c)(8).)
By order of the Board of Governors, May 20, 1971.
Kenneth A. Kenyon
Deputy Secretary
TITLE 12— BANKS AND BANKING
CHAPTER II— FEDERAL RESERVE SYSTEM
SUBCHAPTER A — BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
PART 265— RULES REGARDING DELEGATION OF AUTHORITY
Nonbank Activities Commenced de novo
Effective June 15, 1971, the Board has implemented its
authority under section 4(c)(8) of the Bank Holding Company Act to
permit holding companies to engage directly or through a subsidiary
in activities that are "so closely related to banking or managing
or contolling banks as to be a proper incident thereto*"
As permitted
by section 4(c)(8), the Board differentiated in the procedures that
holding companies must follow in expanding their activities under
section 4(c)(•>) between activities commenced de novo and activities
commenced by the acquisition of a going concern*
The Board has delegated to the Reserve Banks authority to
permit holding companies to engage de novo in activities the Board
has determined to be closely related to banking*
The delegation is reflected in the following amendment to
S 265.2(f) of the Board's Rules Regarding Delegation of Authority:
S 265*2
Specific functions delegated to Board employees and
Federal Reserve Banks*
*
*
(f)
*
*
*
Each Federal Reserve Bank is authorized, as to member
banks or other indicated organizations headquartered in its district:
*
*
*
*
*
- 2
(20) Under § 222.4(b)(1) of this Chapter (Regulation Y),
and subject to § 265.3 if a person submitting adverse comments that
the Reserve Bank has decided are not substantive files a petition
for review by the Board of that decision,
(i) to permit a bank holding company that has furnished
it with a copy of a duly published notice of a proposal to engage
de novo in activities specified in § 222.4(a) (or retain shares in
a company established de novo and engaging in such activities) if
its evaluation of the considerations specified in § 4(c)(8) of the
Bank Holding Company Act leads it to conclude that the proposal can
reasonably be expected to produce benefits to the public.
(ii)
to notify a bank holding company that has furnished
it with a duly published notice of the kind described in clause (i)
that the proposal should not be consummated until specifically
authorized by the Reserve Bank or by the Board or that the proposal
should be processed in accordance with the procedures of § 222.4(b)(2).
(iii) to permit a bank holding company that has furnished it
with a duly published notice of the kind described in clause (i) to
consummate the proposal before the expiration of the 45-day period
referred to in § 222.4(b)(1), because exigent circumstances justify
consummation at an earlier time.
(21) Under § 222.4(c)(2)
of this Chapter (Regulation Y) to
permit or stay a proposed de novo modification or relocation of
- 3 -
activities engaged in by a bank
as de
holding company on the sane basis
novo proposals underthe preceding subparagraph (20)•
*
*
Effective date.
*
This
By order of the Board
*
*
amendment is effective June l£,
of Governors, Hay 20, 1971*
Kenneth A. Kenyon
Deputy Secretary
1971.
Form F.R. Y-4A
FORM FOR PUBLICATION OF NOTICE OF
PROPOSED NONBANKING ACTIVITIES
TO BE ENGAGED IN BY A BANK HOLDING COMPANY
DE NOVO
Pursuant to § 4(c)(8) of the Bank Holding Company Act and
regulations of the Board of Governors of the Federal Reserve System,
(Name of company, in bold-face type)
(City and State of principal place of business)
a bank holding company, proposes to [continue to] engage [, through a
subsidiary known as _______________________________________ ____________>1
in the following activities:
(Brief but reasonably comprehensive description of activities)
Such activities will be conducted at offices in the following locations
(Street address, city, and State)
Persons wishing to comment on this proposal should submit their views
in writing within 30 days of the date of publication of this notice to
(Name, city and State, and zip code of Reserve Bank in
whose district the notice is published.)
NOTE:
Bracketed language should be used only if applicable.
Form F.R. Y-4B
FORM FOR PUBLICATION OF NOTICE OF
PROPOSED ACQUISITION OF SHARES BY
BANK HOLDING COMPANY OF
GOING CONCERN
ENGAGED IN NONBANKING ACTIVITIES
Pursuant to § 4(c)(8) of the Bank Holding Company Act and
regulations of the Board of Governors of the Federal Reserve System,
notice is given that
-
__
»
(Name of company, in bold-face type)
»
(City and State of principal place of business)
a bank holding company, proposes to [retain] [acquire] [shares] [the
assets of] _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _____________ »
(Name of company)
(City and State of principal place of business
and thereby to e n g a g e in the following activities:
(Brief but reasonably comprehensive description of activities)
Such activities will be conducted at offices in the following locations:
........ ....................
.......
..
*
(Street address, city, and State)
Persons wishing to comment on this proposal should submit their views in
writing within 30 days of the date of publication of this notice to
(Name, city and State, and zip code of Reserve Bank in
whose district the notice is published.)
NOTE:
Bracketed language should be used only if applicable.
@FedFRASER