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F ed er a l R eser ve Ba n k o f D allas



Circular No. 72-205
September 15, 1972

(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,

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Section 225.128 Insurance agency activities.

(2) Other types of insurance may be directly
related to an extension of credit. A bank holding
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
§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
§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)
§ 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
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
§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
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.

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