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Federal R eserve Bank OF DALLAS ROBERT D. M c T E E R , J R . DALLAS, TE X A S 7 5 2 6 5 -5 9 0 6 P R E S ID E N T AND C H IE F E X E C U T IV E O F F IC E R August 17, 1994 Notice 94-84 TO: The Chief Executive Officer of each member bank and others concerned in the Eleventh Federal Reserve District SUBJECT Final and Proposed Amendments to Regulation Y (Bank Holding Companies and Change in Bank Control) DETAILS The Board of Governors of the Federal Reserve System has announced adoption of final amendments to the anti-tying provisions of Regulation Y (Bank Holding Companies and Change in Bank Control). The Board has also proposed for public comment an additional amendment to the anti-tying provisions. Section 106(b) of the Bank Holding Company Act Amendments of 1970 generally prohibits a bank from tying its own products, or tying its products to those of an affiliate. The B oa rd ’s Regulation Y applies section 106 to bank holding companies and their nonbank subsidiaries as if they were banks. A statutory exception to these requirements allows a bank to discount any product or service on condition that a customer obtain a traditional bank product (a loan, discount, deposit, or trust service) from that bank. The final rule, which becomes effective September 2, 1994, extends this statutory exception to allow bank holding company affiliates, bank and nonbank, to offer package discounts on traditional bank products. The final rule also permits bank holding company affiliates to offer a discount on securities brokerage services on condition that a customer obtain a traditional bank product from itself or from an affiliate. The proposed rule would permit a bank holding company or its nonbank subsidiary to offer a discount on its products on condition that a customer obtain any other product from that company or subsidiary or from any of its nonbank affiliates. This exception would apply only when none of the packaged products are being offered by a bank. The Board must receive comments by September 16, 1994. Comments should be addressed to William W. Wiles, Secretary, Board of Governors of the Federal Reserve System, 20th Street and Constitution Avenue, N.W., Washington, D.C. 20551. All comments should refer to Docket No. R-0843. 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 Intrastate (800) 592-1631, Interstate (800) 351-1012; Houston Branch Intrastate (800) 392-4162, Interstate (800) 221-0363; San Antonio Branch Intrastate (800) 292-5810. This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org) ATTACHMENTS Copies of the B o a r d ’s notices as they appear on pages 39677-79 and 39709-11, Vol. 59, No. 149, of the Federal Register dated August 4, 1994, are attached. MORE INFORMATION For more information, please contact Michael Johnson at (214) 922-6081. For additional copies of this Ba n k ’s notice, please contact the Public Affairs Department at (214) 922-5254. Sincerely yours, 39677 Rules and Regulations Federal Register Vol. 59, No. 149 Thursday, August 4, 1994 service (the “tying product”) on the condition that the customer obtain some additional product or service (the “tied product”) from the bank or from any of its affiliates; or (2) as a condition for providing a customer a product or service, requires the customer to purchase another product or service from the bank or from any of its affiliates. In 1971, the Board applied these tying restrictions to bank holding companies and their nonbank FEDERAL RESERVE SYSTEM subsidiaries as if they were banks. 12 CFR 225.4(d)(1). 12 CFR Part 225 Section 106 contains an exception (the “traditional bank product [R eg ulatio n Y; D o c k e t No. R-0832] exception”) permitting a bank to tie a Revisions Regarding Tying product to a traditional bank product Restrictions offered by that bank, but not by any affiliated bank or nonbank.1Thus, for AGENCY. Board of Governors of the example, the statutory exception Federal Reserve System. permits a bank to offer a discount on a ACTION: Final rule. loan on the condition that a customer maintain a deposit account at that bank; SUMMARY: The Board is adopting a final however, the bank may not offer a rule amending the anti-tying provision discount on a loan on the condition that of Regulation Y to permit a bank or a a customer maintain a deposit account bank holding company to offer a discount on a loan, discount, deposit, or at an affiliated bank. On March 11,1994, the Board trust service (a “traditional bank requested public comment on two product”), or on securities brokerage services, on condition that the customer proposed exceptions to section 106. 59 FR 12,202 (March 16, 1994). The first obtain a traditional bank product from an affiliate. The Board believes that this exception would extend the statutory traditional bank product exception will increase the efficiency with which described above to permit a bank or organizations can deliver banking bank holding company to offer a services. discount on a traditional bank product EFFECTIVE DATE: September 2, 1994. to a customer who obtains another FOR FURTHER INFORMATION CONTACT: traditional bank product from an Robert deV. Frierson, Assistant General affiliate. The second proposed exception Counsel (202/452-3711); Gregory A. would permit a bank or bank holding Baer, Managing Senior Counsel (202/ company to offer a discount on 452-3236), or David S. Simon, Attorney securities brokerage services to a (202/452-3611), Legal Division; or customer who obtains a traditional bank Anthony Cyrnak, Economist, (202/452 product from an affiliate. 2917), Division of Research and Section 106 authorizes the Board to Statistics, Board of Governors of the permit, by regulation or order, Federal Reserve System. For the hearing exceptions from its anti-tying provisions impaired only, Telecommunication where the Board determines that an Device for the Deaf (TDD), Dorothea exception will not be contrary to the Thompson (202/452-3544). purposes of the section. SUPPLEMENTARY INFORMATION: General Summary o f Comments Background The Board received 68 comments on its proposal. These commenters included 31 bank holding companies, 17 banks, two law firms, five Reserve Banks and seven trade associations. Section 106(b) of the Bank Holding Company Act Amendments of 1970 (12 U.S.C. 1972) generally prohibits a bank from tying a product or service to another product or service offered by the bank or by any of its affiliates. A prohibited tie occurs if a bank: (1) varies the consideration for a product or 1Similarly, under the Board's extension of section 106 to nonbanks in Regulation Y, a nonbank may lie a product to a traditional bank product offered by itself, but no? by an affiliate. Overall, the comments supported both parts of the proposed rule. One commenter generally opposed the proposed amendments because it believed that exceptions to section 106 should be provided on a case-by-case basis and not as a general matter through rulemaking, and that by acting on individual requests, the Board would be able to prevent potential anticompetitive effects, especially in small towns. The Board has concluded, however, that the benefits and costs of the proposal may be assessed in the aggregate and that rulemaking is appropriate. Traditional Bank Products The Board is adopting substantially as proposed the extension of the traditional bank product exception in section 106 to cover discount arrangements involving an affiliate. In particular, the final rule permits a bank or nonbank to vary' the cpnsideration charged for a traditional bank product on the condition that a customer obtain another traditional bank product from an affiliate, provided that each product in the arrangement is separately available for purchase by the customer. The Board believes that the exception is fully consistent with the purposes of section 106, will increase the efficiency with which banking organizations can deliver banking services, and will allow those organizations to provide their customers discounts on packages of banking products that include products offered by affiliates. As noted, section 106 contains an exception permitting a bank to tie a product to a traditional bank product offered by that same bank. The Senate Report accompanying section 106 states that the traditional bank product exception was intended to preserve a customer’s ability to negotiate the price of multiple banking services with the bank on the basis of the customer’s entire relationship with the bank. S. Rep. No. 1084, 91st Cong., 2d Sess., 16 17 (1970). The Board believes that it is consistent with this stated statutory purpose for a bank or bank holding company to offer a discount on packages of traditional bank products when one of the component products in the package is offered by an affiliate. Since 1970 and 1971, there has been a substantial increase in the number of affiliates in bank holding company 39678 Federal Register / Vol. 59, No. 149 / Thursday, August 4, 1994 / Rules and Regulations organizations and the extent of specialization of these affiliates, which has led to customers obtaining traditional bank products from multiple affiliates, both bank and nonbank. Adoption of the proposed rule will be consistent with the purposes of section 106 by allowing a customer to negotiate the price of multiple traditional banking services on the basis of the customer’s entire relationship with a bank holding company organization, as opposed to just a single bank within such an organization. By allowing bank holding companies to package traditional bank products offered by multiple subsidiaries, the exception also will increase the efficiency with which bank holding companies can deliver those products. Several commenters explained that the existing rule had created a disincentive for bank holding companies to consolidate a given traditional bank product in one affiliate (and thereby lose tne exemption for that activity), as opposed to offering the product through all its subsidiary banks (retaining the exemption at each bank but forfeiting efficiency gains). Adoption of the proposed exception to section 106 will not only permit bank holding companies to offer products more efficiently but also will allow their customers to benefit. Customers will be able to realize cost savings when they obtain traditional bank products from two or more subsidiaries of a bank holding company instead of just on£. Because the inter-affiliate traditional bank product exception will allow bank holding company affiliates to offer customers a more favorable price on packages of banking products, thereby relieving bank holding companies of a competitive disadvantage and benefitting their customers, the Board has concluded that the amendment is consistent with the purposes of section 106 and should be adopted. Several commenters requested an expansion of the proposed exception to include inter-affiliate arrangements in which the tying product is a nontraditional bank product and the tied product is a traditional bank product. The Board has decided not to extend the statutory traditional bank product exception to inter-affiliate tying involving non-traditional bank products at this time. However, in a separate notice, the Board is proposing to amend the tying restrictions of Regulation Y to permit any discount arrangement that involves only nonbank affiliates. Discounts on Securities B r o k e r a g e Services banks should take to prevent confusion, including informing customers in writing that the products are not In December 1993, the Board federally insured, are not deposits or approved an exemption for a brokerage other obligations of the institution and subsidiary of a bank to offer a discount are not guaranteed by the institution, on brokerage services to its customers who maintain a minimum balance in an and involve investment risks including possible loss of principal. In addition, account at the bank or any affiliated the statement restricts where an bank. First Union Corporation, 80 institution may offer non-deposit Federal Reserve Bulletin 166 (1994). The Board concluded that the requested investment products. The Board believes that this statement satisfactorily exemption was consistent with the addresses any possibility of an increase legislative purpose of section 106 (to in customer confusion about coverage of prevent banks from using their federal deposit insurance where banks economic power to engage in offer brokerage services as part of a anticompetitive practices) and the package arrangement. legislative purpose of the Board’s A few commenters requested that the exemptive authority (to allow Board clarify that “brokerage services’’ appropriate traditional banking refers to “securities brokerage services” practices based on sound economic and that securities brokerage services analysis). In its order, the Board found include related incidental services as that the market for retail brokerage authorized by Regulation Y. These serv ices was national in scope and technical changes are consistent with highly competitive, making it unlikely the intent of the proposed rule, and will that any of these banks—or any other be included in the final rule. provider of brokerage services—could Some commenters requested that the exercise sufficient market power in Board grant an exception permitting a brokerage services to impair bank or a bank holding company to vary competition in the market for traditional the consideration charged for a banking services. As part of the order, traditional bank product, such as a the Board required that the two deposit service, based on a customer’s products in the arrangement be purchase of brokerage services—the separately available for purchase by the converse of the proposed exception. The customer, noting that under antitrust Board believes that this proposal should precedent, concerns about tying are be evaluated in the context of a specific substantially reduced when the buyer is exemption request. One such request free to take either product by itself. has been published for comment. Fleet The Board is adopting substantially as Financial Group, Inc., 59 FR 9,216 proposed an amendment to Regulation (February 25,1994). Y making this exemption available to all A few commenters sought an bank holding companies. This interpretation that ties involving mutual amendment will permit any bank or funds were either wholly or partially bank holding company to offer a exempt from section 106, either because discount on brokerage services if a mutual funds are not bank holding customer obtains a traditional bank company subsidiaries or because mutual product from any affiliate. The fund products constitute trust services regulatory exception is conditioned on and therefore qualify as traditional bank the brokerage services and traditional products. The Board intends to address bank products offered in the this issue separately. Some commenters sought clarification arrangement being separately available on whether both proposed exceptions for purchase by the customer. Commenters overwhelmingly favored were limited to cases where the tying product was offered by a bank, or also the proposed amendment. Commenters included cases where the tying product stated that the regulatory exception was offered by a bank holding company would promote fair competition with or its nonbanking subsidiary. The nonbank competitors and would result concern arose because the proposed in cost savings and other benefits to exceptions were phrased only in terms customers. A securities industry association of banks. The Board notes that the language of section 225.4(d)(1) of opposed the proposed exception because it believed that the exception Regulation Y would automatically apply would increase customer confusion by the proposed exceptions for banks to bank holding companies and their reinforcing the false impression that nonbanking subsidiaries, as was brokerage services offered by banks are intended by the proposed rulemaking. insured by the federal government. However, the final rule has been However, the recent inter-agency statement on retail sales of non-deposit amended to make this coverage explicit. investment products specifies steps that Rather than referring to a “bank” Federal Register / Vol. 59, No. 149 / Thursday, August 4, 1994 / Rules and Regulations 39679 offering a traditional bank product or a discount on brokerage services, the rule refers to a “bank holding company or bank or nonbank subsidiary thereof.” By order of the Board of Governors of the redesignated as paragraphs (d) through Federal Reserve System, July 27,1994. (f). 3. A new § 225.7 is added to subpart William W. Wiles, Secretary of the Board. A of part 225 to read as follows: Reorganization of Regulation § 225.7 T ying re stric tio n s . (a) Applicability to nonbanks. A bank holding company and any nonbanking subsidiary conducting an activity authorized under § 225.23 may not in any manner extend credit, lease or sell property of any kind, provide any service, or fix or vary the consideration for any of these transactions subject to any condition or requirement that, if imposed by a bank, would constitute an unlawful tie-in arrangement under section 106 of the Bank Holding Company Act Amendments of 1970 (12 U.S.C. 1971, 1972(1)). (b) Exceptions. Subject to the limitations of paragraph (c) of this section, the Board has adopted the following exceptions to the anti-tying restrictions of section 106 of the Bank Holding Company Act Amendments of 1970 and paragraph (a) of this section. (1) Traditional bank products. A bank holding company or any bank or nonbank subsidiary thereof may vary the consideration charged for a traditional bank product on the condition or requirement that a customer also obtain a traditional bank product from an affiliate. (2) Securities brokerage senices. A bank holding company or any bank or nonbank subsidiary thereof may vary the consideration charged for securities brokerage services on the condition or requirement that a customer also obtain a traditional bank product from that bank holding company or bank or nonbank subsidiary, or from any affiliate of such company or subsidiary. (c) Limitations on exceptions. (1) The exceptions of this section shall apply only if all products involved in the tying arrangement are separately available for purchase. (2) Any exception granted pursuant to this section shall terminate upon a finding by the Board that the arrangement is resulting in anticompetitive practices. (d) Definitions. For purposes of this section: (1) Traditional bank product means a loan, discount, deposit, or trust service. (2) Affiliate has the meaning given such term in section 2(k) of the Bank Holding Company Act (12 U.S.C. 1841(k)). (3) Securities brokerage sen'ices means those activities authorized by the Board pursuant to § 225.25(b)(15). In a non-substantive change, the Board has restructured the regulation to make it more easily understandable. The regulation has been moved from the section on corporate practices, § 225.4, and established as its own section, § 225.7. The application of section 106 to bank holding companies and their nonbank subsidiaries is contained in paragraph (a). Paragraph (b) contains exceptions to both section 106 and § 225.7(a), and paragraph (c) contains limitations on each of those exceptions. Finally, a definition paragraph, § 225.7(d), has been added. In addition, the exception for credit card services previously contained in § 225.4(d)(2) has been removed from the regulation, as all transactions previously excepted under that provision are now excepted under the traditional bank product exception in § 225.7(b)(1). Also, the phrase “(but no other products)” has been deleted in places where it was superfluous. These changes are not substantive. Paperwork Reduction Act No collections of information pursuant to section 3504(h) of the Paperwork Reduction Act (44 U.S.C. 3501 et seq.) are contained in the proposed rule. Regulatory Flexibility Act It is hereby certified that this final rule will not have a significant economic impact on a substantial number of small entities that would be subject to the regulation. List of Subjects in 12 CFR Part 225 Administrative practice and procedure, Banks, banking, Holding companies, Reporting and recordkeeping requirements, Securities. For the reasons set forth in this document, the Board amends 12 CFR part 225 as set forth below: PART 225—BANK HOLDING COMPANIES AND CHANGE IN BANK CONTROL (REGULATION Y) 1. The authority citation for 12 CFR part 225 continues to read as follows: Authority: 12 U.S.C. 1817(j)(13), 1818, 1831i, 1831p-l, 1843(c)(8), 1844(b), 1972(1), 3106, 3108, 3907, 3909, 3310, and 3331 3351. § 225.4 [A m ended] 2. In § 225.4, paragraph (d) is removed and paragraphs (e) through (g) are [FR Doc. 94-18724 Filed 8-3-94; 8:45 am) BILUNG CODE 6210-01-P Federal Register / Vol. 59, No. 149 / Thursday, A ugust 4, 1994 / Proposed Rules 39709 or serv ice from that company or subsidiary or from any of its nonbank affiliates, provided that all products offered in the package arrangement are separately available for purchase. This exception would not apply when any product in the arrangement is offered by a bank. The board believes that this will increase the efficiency with which banking organizations can deliver banking services. DATES: Comments must be submitted on or before September 17,1994. ADDRESSES: Comments should refer to Docket No. R-0843, and may be mailed to William W. Wiles, Secretary, Board of Governors of the Federal Reserve System, 20th Street and Constitution Avenue, N.W., Washington, D.C. 20551. Comments also may be delivered to room B-2222 of the Eccles Building between 8:45 a.m. and 5:15 p.m. weekdays, or to the guard station in the Eccles Building courtyard on 20th Street, N.W. (between Constitution Avenue and C Street) at any time. Comments may be inspected in room MP-500 between 9:00 a.m. and 5:00 p.m. weekdays, except as provided in 12 CFR 261.8 of the Board’s rules regarding availability of information. FOR FURTHER INFORMATION CONTACT: Robert deV. Frierson, Assistant General Counsel (202/452-3711); Gregory A. Baer, Managing Senior Counsel (202/ 452-3236), or David S. Simon, Attorney (202/452-3611), Legal Division; or Anthony Cymak, Economist, (202/452 2917), Division of Research and Statistics, Board of Governors of the Federal Reserve System. For the hearing impaired only, Telecommunication Device for the Deaf (TDD), Dorothea Thompson (202/452-3544). SUPPLEMENTARY INFORMATION: Background FEDERAL RESERVE SYSTEM 12 CFR Part 225 [R egulation Y; D o cket No. R -0843] Revisions Regarding Tying Restrictions Board of Governors of the Federal Reserve System. ACTION: Notice of proposed rulemaking. AGENCY: The Board is seeking public comment On a proposed amendment to the anti-tying provisions of Regulation Y. The proposed amendment would permit a bank holding company or its Donbank subsidiary to discount any of its products or services on condition that a customer obtain another product Section 106(b) of the Bank Holding Company Act Amendments of 1970 (12 U.S.C. 1972) generally prohibits a bank from tying a product or service to another product or service offered by the bank or by any of its affiliates.1In 1971, the Board applied these tying restrictions to bank holding companies and their nonbank subsidiaries as if they were banks. 12 CFR 225.4(d)(1); 36 FR 10777, 10778 (1971). On March 11,1994, the Board requested public comment on proposed SUMMARY: 1 A prohibited tie-in occurs if a bank: (1) varies the consideration for a product or service (the "tying product”) on the condition tfyat the customer obtain some additional product or service (the “tied product") from the bank or from any of its affiliates; or (2) as a condition for providing a customer a product or service, requires the customer to purchase another product or scrvice trom the bank or from any of its affiliates. 39710 Federal Register / Vol. 59, No. 149 / T hursday, August 4, 1994 / Proposed Rules amendments to Regulation Y, including an extension of the so-called traditional bank product exception of section 106 to package arrangements with affiliates. 59 F R 12202 (March 16,1994). In addition to comments on the proposed rule, which is being made final in a separate document published elsewhere in this issue of the Federal Register, the Board received various requests for interpretation or extension of regulatory exceptions to the tying restrictions imposed by section 106 and Regulation Y. In particular, commenters urged the Board to reconsider its extension of the tying restrictions of section 106 to bank holding companies and their nonbank subsidiaries. Consistency With Section 106 By its terms, section 106 applies only when a bank offers the tying product— that is, when a bank is varying the consideration or conditioning the availability of a product in order to create an incentive for the customer to purchase another product from the bank or an affiliate. This coverage was consistent with the stated purpose of section 106: To prevent banks from using their market power over certain products to gain an unfair competitive advantage in other products. See, e.g., S. Rep. No. 1084, 91st Cong., 2d Sess., 16 (1970) (section 106 was “intended to provide specific statutory assurance that the use of the economic power of a bank will not lead to a lessening of Proposed Amendments competition or unfair competitive After considering those requests, the practices”). The proposed exception Board has decided to propose an would apply only when nonbanks are amendment to its anti-tying regulation offering the packaged products. Such to conform it more closely to section arrangements are not covered by the 106 and its focus on tying by banks. terms of section 106; nor do they raise Under the proposed rule, bank holding the specific concerns that section 106 companies and their nonbanking subsidiaries would be permitted to offer was intended to address. discounts on packaged products when: Consistency With Regulation Y (1) Both the tying and tied products2 are The tying restrictions of section 106 offered by bank holding companies or were imposed by the Bank Holding their nonbanking subsidiaries—in other Company Act Amendments of 1970 in words, where no affiliated bank is conjunction with an extension of new involved In the arrangement; and (2) nonbanking powers to bank holding both the tying and tied products are companies and their nonbank separately available.3 In cases that do subsidiaries. The potential for not qualify for this (or some other) anticompetitive behavior by such exception, the general restrictions of subsidiaries—which were then section 106 and Regulation Y would uncommon—was uncertain pending continue to apply; for example, if the package arrangement involved a product implementation of the Act, and the Board therefore adopted a prophylactic offered by an affiliated bank, the rule in applying the restrictions of exception would not apply and the nonbanking subsidiary could only offer section 106 to bank holding companies and their nonbank subsidiaries. discount package arrangements Much has change^, however, since involving exclusively traditional bank adoption of that rule. Competition in products or securities brokerage most financial markets has increased services, under exceptions recently substantially since 1971, and through its adopted by the Board and to take effect experience in the supervision of in thirty days. The antitrust laws also nonbank subsidiaries of bank holding would continue to apply in all cases. companies, the Board has been able to The Board believes that the proposed assess the role of nonbanking exception is consistent with the terms and purposes of section 106, is justified subsidiaries in those markets. The Board believes that neither bank holding by the competitive environment in companies nor their nonbanking which nonbanking subsidiaries subsidiaries generally appear to possess generally operate, and is potentially beneficial both to banking organizations sufficient market power in the products that they offer to impair competition. and consumers. For example, the “laundry list” activities in which bank holding 1 The "tying" product is the product whose consideration is being varied or whose availability companies and their nonbanking is being conditioned. The “ tied " product is the subsidiaries are permitted to engage are product that m ust be purchased in order to receive generally conducted in competitive a discount on th e tying product or becom e eligible national or regional markets that are to purchase the tying p ro d u ct characterized by large numbers of actual 5 The Board recognizes that requiring the products to be separately available effectively or potential competitors and low requires that the exception be lim ited to discounting, and vice versa, but is proposing both conditions in order to avoid any ambiguity. barriers to entry.4 In such markets, the potential for a market participant to gain a competitive advantage through tying is substantially reduced. Moreover, if the Board’s proposal were adopted, ties involving bank holding companies and their nonbanking subsidiaries would, as noted, continue to be restricted by the federal antitrust laws (primarily the Clayton and Sherman Acts)—the same restrictions that bind their competitors. In addition, section 106 would continue to restrict tying by banks, and the Board would continue to apply special restrictions to tying by a nonbank when the tied product is offered by an affiliated bank As a final protection, the Board would retain the authority to terminate or modify any exception that resulted in anticompetitive practices. Furthermore, the Board is proposing to rescind its special restrictions on tying between nonbanks only where the products are separately available and a discount is being offered.5 These conditions prevent the conditioning of the availability of one product on the purchase of another and allow consumers to compare prices. The Board recognizes that to the extent that the market for products offered by bank holding companies and their nonbanking subsidiaries is competitive, these conditions should not be strictly necessary. The Board seeks comment on whether these conditions should be retained as a precaution against any anti-competitive practices. The Board also seeks comment on a clarification to the requirement of separate availability, applicable to all the regulatory exceptions, that would provide that products must be separately available “at competitive prices.” This amendment would clarify that if a product is available outside a package arrangement only at a non-competitive price, it is not truly separately available. Costs o f Tying Restrictions The special tying restrictions imposed on nonbank subsidiaries of bank holding companies not only appear to be unnecessary to prevent those companies from gaining an unfair competitive advantage, but also place those companies at a competitive disadvantage with other providers of the same products and services. As a result of Regulation Y’s current prohibition, a 4 The “laundry list" activities are specified by regulation. See 12 CFR 225.25. * Under antitrust law, concerns over tying arrangements are substantially reduced where the buyer is free to take either product by itself, even though the seller may also offer the two items as a unit at a single price. Northern Pacific ft. Co. v. Unites States. 356 U.S. 1,6 n.4 (1958). Federal Register / Vol. 59, No. 149 / Thursday, August 4, 1994 / Proposed Rules nonbanking company is generally prohibited from offering discounted packages of its own products or discounted packages that include its own products and those of other affiliated nonbanking companies. Their competitors who are not affiliated with banks are not similarly constrained. Several commenters in the Board’s recent rulemaking noted that brokerage firms and other nonbank competitors are offering the types of discounts currently prohibited by Regulation Y, which are not generally illegal for purposes of the federal antitrust laws. The inability of nonbanks in a holding company structure to offer discounts not only diminishes their competitiveness but also deprives their customers of an opportunity to receive discounts. The Board believes that under the proposed rule, customers would be presented with more choices and potentially lower costs. List o f Subjects in 12 CFR Part 225 Congressional Intent §225.7 Administrative practice and procedure, Banks, banking, Holding companies, Reporting and recordkeeping requirements, Securities. For the reasons set forth in the preamble, the Board proposes to amend 12 CFR Part 225 as set forth below: PART 225—BANK HOLDING COMPANIES AND CHANGE IN BANK CONTROL (REGULATION Y) 1. The authority citation for 12 CFR part 225 continues to read as follows: Authority: 12 U.S.C. 1817(j)(13), 1818, 1831i, 18 31 p-l, 1843(c)(8), 1844(b), 1972(1), 3106, 3108, 3907, 3909, 3310, and 3331 3351. 2. In section 225.7, a new paragraph (b)(3) is added and paragraph (c) is revised to read as follows: * * T ying R e stric tio n s. * * * The Board notes that this proposed treatment of tying by nonbanking (b) * * * subsidiaries is consistent with recent (3) Discounts on tie-in arrangements Congressional action in the tying area. not involving banks. A bank holding In applying anti-tying restrictions to company or any nonbank subsidiary savings associations in the Gam-St. thereof may vary the consideration for Germain Depository Institutions Act, any extension of credit, lease or sale of Public Law No. 97-320, section 331, 96 property of any kind, or service, on the Stat. 1496, Congress closely paralleled condition or requirement that the section 106 in applying the restriction only when the tying product was offered customer obtain some additional credit, by the savings association. An extension property, or service from itself or a nonbank affiliate, provided that all of the restrictions to non-savings association affiliates of the type adopted products and services offered in the arrangement also are separately by the Board was neither included by available for purchase by the customer. Congress nor subsequently adopted by the Office of Thrift Supervision. (c) Limitations on exceptions. (1) The exceptions of this section shall apply Other Issues only if all products involved in the tying Finally, the Board is proposing to arrangement are separately available for amend Regulation Y to clarify that the purchase at competitive prices. Board’s retained authority to revoke an (2) Any exception granted pursuant to exception that is resulting in anti this section shall terminate upon a competitive practices includes authority finding by the Board that the to halt such practices at an individual arrangement is resulting in anti institution. competitive practices. The eligibility of a bank holding company or bank or Paperwork Reduction Act nonbank subsidiary thereof to operate No collections of information under any exception granted pursuant pursuant to section 3504(h) of the to this section shall terminate upon a Paperwork Reduction Act (44 U.S.C. .finding by the Board that its exercise of 3501 et seq.) are contained in the this authority is resulting in anti proposed rule. competitive practices. * * * * * Regulatory Flexibility Act It is hereby certified that this proposed rule, if adopted as a final rule, will not have a significant economic impact on a substantial number of small entities that would be subject to the regulation. By order of the Board of Governors of the Federal Reserve System, July 27,1994. William W. Wiles, Secretary of the Board. IFR Doc. 94-18723 Filed 8-3-94; 8:45 am] BILLING CODE 6 210-01-P 39711
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