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F ed er a l R eser ve Ba n k o f D allas DALLAS. TEXAS 75222 Circular No. 72-205 September 15, 1972 INTERPRETATION OF REGULATION Y (insurance Agency Activities that are Closely Related, to Banking) To All Banks, Bank Holding Companies and Others Concerned in the Eleventh Federal Reserve District: The Board, of Governors of the Federal Reserve System issued on September 6, 1972 an interpretation concerning the nature of insurance agency activities that are closely related to banking and in which bank holding companies may engage under the provisions of Regulation Y. The interpretation is printed, on the following pages. Yours very truly, P. E. Coldwell, President This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org) BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM BANK HOLDING COMPANIES INTERPRETATION OF REGULATION Y Section 225.128 Insurance agency activities. (2) Other types of insurance may be directly related to an extension of credit. A bank holding (a) Effective September 1, 1971, the Board of company applying to engage in the sale of such Governors amended § 225.4(a) of Regulation Y other types should furnish information showing to add specified insurance agency activities to the that such insurance is so directly related. list of activities the Board has determined to be so closely related to banking or managing or con (3) A renewal of insurance, after the credit ex trolling banks as to be a proper incident thereto. tension has been repaid, is regarded as closely In the course of administering this regulation, a related to banking only to the extent that such number of questions have arisen concerning the renewal is permissible under § 225.4(a)(9)(ii)(c) scope and terms of the Board’s regulation. The of Regulation Y. Board’s views on some of these questions are set (4) The Board generally regards insurance pro forth below. tecting collateral where the security interest of a (d) §225.4(a)(9)(i): Insurance “for the holding bank or bank-related firm was obtained by pur company and its subsidiaries.” The Board regards chase rather than by a direct extension of credit by the holding company system as not being the sale of group insurance for the protection of employees of the holding company as insurance directly related to an extension of credit by a bank for the holding company and its subsidiaries. or bank-related firm. However, if such security interests are purchased on a continuing basis from (c) §225.4(a)(9)(u)(a): Insurance “directly related a firm or an individual and the interval between to an extension of credit by a bank or a bankthe creation of the security interest and its sub related firm.” (1) This provision is designed to sequent purchase is minimal, the Board may re permit the sale, by a bank holding company sys gard such purchase as an extension of credit. Full tem, of insurance that supports the lending trans details of the transactions should be provided to actions of a bank or bank-related firm in the support a holding company’s contention that such holding company system. The Board regards the insurance sales are directly related to an extension sale of insurance as directly related to an extension of credit. of credit by a bank or bank-related firm where (i) (d) § 225.4(a)(9)(ii)(b): Insurance “directly re the insurance assures repayment of an extension of lated to the provision of other financial services credit by the holding company system in the event by a bank or . . . bank-related firm.” This pro of death or disability of the borrower (for example, vision is designed to permit the sale by a bank credit life and credit accident and health insur holding company system of insurance in con ance); or (ii) the insurance protects collateral in nection with bank-related services (rendered by a which the bank or bank-related firm has a security member of the holding company system) other interest as a result of its extension of credit; or than an extension of credit. Among the types of (iii) the insurance is other insurance which is sold insurance the Board regards as directly related to individual borrowers in conjunction with or as to such services are: (i) insurance against loss of part of an insurance package (as a matter of securities held for safekeeping; (ii) insurance for general practice) with insurance protecting the valuables in a safe deposit box; (iii) life insurance collateral in which a bank or bank-related firm equal to the difference between the maturity value has a security interest as a result of its extension of a deposit plan for periodic deposits over a of credit. Examples that fall within (iii) above are: (a) liability insurance sold in conjunction with specified term and the balance in the account at the time of the depositor’s death; (iv) in connec insurance relating to physical damage of an auto tion with mortgage loan servicing that is provided mobile when the purchase of such automobile is by a bank or bank-related firm, insurance on the financed by a bank or bank-related firm; and (b) a homeowner’s insurance policy with respect to mortgaged property and/or insurance on the mort a residence mortgaged to a bank or bank-related gagor to the extent of the outstanding balance of firm. the credit extension, provided that the mortgagee is a beneficiary under such types of insurance policies; and (v) insurance directly related to the provision of trust services if the sale of such insurance is permitted by the trust instruments and under State law. (2) The term “premium income” means gross commission income. (3) The Board generally will regard premium income attributable to “convenience” sales as not constituting a “significant portion” if the income (e) §225.4(a)(9)(ii)(c): Insurance that “is other attributable to “convenience” sales is less than 5 wise sold as a matter of convenience to the pur per cent of the aggregate insurance premium in chaser, so long as the premium income from sales come of the holding company system from in within . . . subdivision (ii)(c) does not constitute surance sold pursuant to § 225.4(a)(9)(ii). a significant portion of the aggregate insurance premium income of the holding company from insurance sold pursuant to . . . subdivision (ii).” 9/6 /7 2 (1) This provision is designed to permit the sale of insurance as a matter of convenience to the purchaser. It is not designed to permit entry into the general insurance agency business. * * * * *