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F ed er a l R eser ve Ba n k DALLAS, TEXAS of Dallas 75222 Circular No. 73-121 May 21, 1973 Notice of Possible Rule Making / REGULATION Y (Underwriting Real Estate Mortgage Guarantee Insurance) To All Banks, Bank Holding Companies, and Others Concerned in the Eleventh Federal Reserve District: The Board of Governors of the Federal Reserve System on May lU, 1973, issued for comment a notice of possible rule making with respect to applications to the Board to engage in the activity of underwriting real estate mortgage guarantee insurance by bank holding companies. The proposal is enclosed. Comments should be received by the Secretary, Board of Governors of the Federal Reserve System, Washington, D. C. 20551? not later than June lU, 1973- Yours very truly, P. E. Coldwell, President Enclosure This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org) FEDERAL RESERVE SYSTEM [12 CFR Part 225] [Reg Y] Bank Holding Companies Notice of Applications to Acquire Companies to be Engaged in the Underwriting of Real Estate Mortgage Guaranty Insurance; and of Possible Rulemaking with Respect Thereto. The Board of Governors has received the following applica tions filed pursuant to § 4(c)(8) of the Bank Holding Company Act (12 U.S.C. 1848(c)(8)) and § 225.4(b)(2) of the Board's Regulation Y (12 CFR 225.4(b)(2)) for prior approval to acquire shares of companies to be engaged in the underwriting of real estate mortgage guaranty insurance. 1. Indiana National Corporation, Indianapolis, Indiana, has applied to acquire voting shares of Monument Insurance Company, Indianapolis, Indiana, a proposed d e novo insurance company to be t organized under Indiana law to underwrite real estate mortgage guaranty insurance. 2. First Virginia Bankshares Corporation, Falls Church, Virginia, has applied to acquire voting shares of Commonwealth Mortgage Guaranty Company, Falls Church, Virginia, a proposed de novo insurance company to be organized under Virginia law to underwrite real estate mortgage guaranty insurance. -2 - The activity of underwriting real estate mortgage guaranty insurance has not heretofore been found by the Board to be closely related to banking. Both Applicants state that the proposed activity essentially involves a credit decision, is part of the credit-extending process, and, as such, is, in Applicants' opinion, so closely related to banking as to be a proper incident thereto. In connection with these applications, the Board will also consider possible rulemaking to add the proposed activity to the list of activities the Board has previously determined to be closely related to banking. In its deliberations on the activity proposed in the present applications and the proposed rulemaking related thereto, the Board will also consider possible imposition of certain restrictions and requirements upon bank holding company entry into the proposed activity. Among the restrictions and requirements the Board will consider are that? a. the proposed subsidiary may not underwrite real estate mortgage guaranty insurance on mortgages originated by the holding company system; b. the proposed subsidiary must, prior to under writing any insurance, become an insurer qualified by the Federal Home Loan Mortgage Corporation; c. the bank holding company system may not make demand deposits in or reduce correspondent service charges > -3 for any financial institution as an indirect means of compensating that financial institution for utilizing the holding company's proposed underwriting subsidiary; and d. the name of the proposed subsidiary may not resemble that of the holding company or any subsidiary bank. Additionally, the Board will consider the desirability of providing that, with respect to any proposed mortgage guaranty subsidiary, due to its status as a nonbanking subsidiary, in no event may the resources of any banking subsidiary of the holding company be used to support such company if it encounters financial difficulties. Interested persons may express their views on the question of whether the underwriting of real estate mortgage guaranty insurance is so closely related to banking or managing or controlling banks as to be a proper incident thereto, and the restrictions and requirements which are being considered in connection with the proposed activity. Interested persons may also express their views on the question of whether consummation of the subject proposals can "reasonably 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." - 4- Any requests for a hearing on these questions should be accompanied by a statement summarizing the evidence the person requesting the hearing proposes to submit or to elicit at the hearing and a statement of the reasons why this matter should not be resolved without a hearing. The applications may be inspected at the offices of the Board of Governors or at the respective Federal Reserve Banks of each of the bank holding companies. Any views or requests for hearing should be submitted in writing and received by the Secretary, Board of Governors of the Federal Reserve System, Washington, D. C. 20551, not later than June 14, 1973. By order of the Board of Governors, effective May 14, 1973. (Signed) Tynan Smith Tynan Smith Secretary of the Board