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F ederal Reserve Bank DALLAS, TEXAS of Dallas 75222 Circular No. 73-171 July 11, 1973 PROPOSED AMENDMENT TO REGULATION Y (To Clarify Deposit-Taking Activities Permitted to Trust Company Subsidiaries) To All Banks, Bank Holding Companies, and Others Concerned in the Eleventh Federal Reserve District: On July 3, 1973, the Board of Governors of the Federal Reserve System proposed an amendment to Regulation Y to clarify the deposit-taking activities permitted to trust company subsidiaries. The proposal concerns trust company subsidiaries that are not "Banks" within the meaning of the Bank Holding Company Act (that is, they do not both accept demand deposits and engage in the business of making commercial loans). Interested parties are invited to submit relevant data, views, or arguments in writing to the Secretary, Board of Governors of the Federal Reserve System, Washington, D. C. 20551? to be received not later than August 6, 1973* The press release and proposed amendment are printed on the following pages. 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 F o r im m e d ia te r e l e a s e J u l y 3 , 1973 The B oard o f G o v e rn o rs o f t h e F e d e r a l R e s e rv e S y ste m t o d a y p r o p o s e d an amendment t o i t s bank h o l d i n g company r e g u l a t i o n t o c l a r i f y t h e d e p o s i t - t a k i n g a c t i v i t i e s p e r m i t t e d t o t r u s t company s u b s i d i a r i e s . The p r o p o s a l c o n c e r n s t r u s t company s u b s i d i a r i e s t h a t a r e n o t " b a n k s " w i t h i n t h e m e a n in g o f t h e Bank H o ld in g Company A c t ( t h a t i s , t h e y do n o t b o t h a c c e p t demand d e p o s i t s a nd e n g a g e i n t h e b u s i n e s s o f m aking c o m m e rc ia l l o a n s ) . Such t r u s t c o m p a n ie s w o u ld b e p e r m i t t e d t o a c c e p t d e p o s i t s t h a t a r e (1 ) g e n e r a t e d o u t o f fu n d s r e c e i v e d u n d e r t r u s t i n s t r u m e n t s o r (2 ) r e p r e s e n t fu n d s t h a t a r e r e c e i v e d f o r a s p e c i a l u s e on b e h a l f o f a n i s s u e r o f s e c u r i t i e s o r a n i n v e s t o r in s e c u r i ti e s . Bank h o l d i n g c o m p a n ie s c o u l d a p p l y t o a c q u i r e s u c h t r u s t c o m p a n ie s a c r o s s S t a t e l i n e s . The p r o p o s a l w ould a l s o p e r m i t b a n k h o l d i n g c o m p a n ie s t o a p p l y t o a c q u i r e c o m p a n ie s t h a t a r e c h a r t e r e d by t h e C o m p t r o l l e r o f t h e C u r r e n c y t o e n g a g e s o l e l y i n t r u s t company a c t i v i t i e s . The B o a r d 's p r o p o s a l t a k e s n o t e o f r e c e n t d e v e lo p m e n ts i n New Y ork i n w h ic h l i m i t e d p u r p o s e t r u s t c o m p a n ie s a r e b e i n g e s t a b l i s h e d t o f u r n i s h s t o c k t r a n s f e r an d r e l a t e d s e r v i c e s and t o a c c e p t d e p o s i t s i n c i d e n t a l t h e r e t o . A lso , t h e C o m p t r o l l e r h a s r e c e n t l y g r a n t e d a n a t i o n a l b a n k c h a r t e r t o a company o r g a n i z e d s o l e l y t o e n g a g e i n c a r r y i n g on t h e b u s i n e s s o f a c o m m e rc ia l b a n k t r u s t d e p a r t m e n t and a c t i v i t i e s in c id e n t to such b u s in e s s . I n t e r e s t e d p e r s o n s a r e i n v i t e d t o s u b m it comments i n w r i t i n g t o t h e S e c r e t a r y o f t h e B oard t h r o u g h A u g u s t 6 , 1973. A co p y o f t h e B o a r d 's p r o p o s a l i s a t t a c h e d . - 0 - FEDERAL RESERVE SYSTEM [12 CFR PART 222] BANK HOLDING COMPANIES N o n b a n k in g A c t i v i t i e s a nd I n t e r e s t s P ursuant to i t s a u th o r ity under s e c tio n 4 (c )(8 ) H o l d i n g Company A c t (12 U .S .C . o f t h e Bank 1 8 4 3 ( c ) ( 8 ) ) , t h e B oard p r o p o s e s t o amend § 2 2 5 .4 ( a ) ( 4 ) o f i t s R e g u la tio n Y t o c l a r i f y th e b o u n d a rie s upon d e p o s i t t a k i n g a c t i v i t i e s t h a t a r e p r o p e r l y i n c i d e n t a l t o t r u s t company a c t i v i t i e s w h ic h t h e B o a rd h a s d e t e r m i n e d t o b e s o c l o s e l y r e l a t e d t o b a n k in g o r m a n a g in g o r c o n t r o l l i n g b a n k s a s t o b e a p r o p e r i n c i d e n t t h e r e t o , a n d t o p ro v id e t h a t th e k in d s o f a c t i v i t i e s a u th o r iz e d u nder § 2 2 5 .4 ( a ) ( 4 ) in clu d e t h o s e p e r f o r m e d n o t o n l y b y t r u s t company s u b s i d i a r i e s t h a t a r e S t a t e c h a r t e r e d , b u t a l s o by a n y s u c h s u b s i d i a r i e s t h a t may o p e r a t e a s l i m i t e d p u r p o s e t r u s t c o m p a n ie s u n d e r n a t i o n a l b a n k c h a r t e r s a nd t h a t do n o t b o t h a c c e p t demand d e p o s i t s and make c o m m e rc ia l l o a n s . The d e f i n i t i o n o f b o u n d a r i e s upo n d e p o s i t - t a k i n g a c t i v i t i e s by t r u s t company s u b s i d i a r i e s o f ba n k h o l d i n g c o m p a n ie s u n d e r § 2 2 5 . 4 ( a ) ( 4 ) is e s p e c ia lly s ig n if ic a n t in th e case o f m u lti- S ta te o p e ra tio n s . Sec t i o n 3 ( d ) o f t h e Bank H o l d i n g Company A c t ( 1 2 U .S .C . 1 8 4 2 ( d ) ) p r o h i b i t s t h e B o a rd fro m a p p r o v i n g a n y a p p l i c a t i o n u n d e r s e c t i o n 3 w h ic h w i l l p e r m i t any b a n k h o l d i n g company t o a c q u i r e , d i r e c t l y o r i n d i r e c t l y , a d d i t i o n a l b a n k s l o c a t e d o u t s i d e o f t h e S t a t e i n w h ic h t h e o p e r a t i o n s o f i t s b a n k i n g s u b s i d i a r i e s a r e p r i n c i p a l l y c o n d u c te d , u n le s s any such a c q u i s i t i o n i s s p e c i f i c a l l y a u t h o r i z e d b y t h e la w s o f t h e S t a t e i n w h ic h s u c h a d d i t i o n a l -2 - bank i s l o c a t e d . I n some c a s e s , t r u s t c o m p a n ie s a r e c h a r t e r e d a s b a n k s , b u t i n t e n d t o l i m i t t h e i r o p e r a t i o n s t o t r u s t a c t i v i t i e s a nd n o t t o e n g ag e i n c o m m e rc ia l b a n k i n g . The p o l i c y o f s e c t i o n 3 ( d ) w ould n o t a p p l y t o h o l d i n g company s u b s i d i a r i e s o f t h i s t y p e . The p r o p o s e d amendment w ould d e l i n e a t e t h e s c o p e o f d e p o s i t - t a k i n g a c t i v i t i e s t h a t c o u l d be e n g a g e d i n b y t r u s t company s u b s i d i a r i e s c o n s i s t e n t l y w i t h n o n bank s t a t u s u n d e r t h e Bank H o l d i n g Company A c t . U nder t h e p r o p o s a l , a t r u s t company s u b s i d i a r y t h a t i s n o t a " b a n k " w i t h i n t h e m e a n in g o f t h e Bank H o l d i n g Company A c t w ould b e p e r m it te d t o a c c e p t d e p o s i t s t h a t a r e g e n e ra te d o u t o f fu n d s r e c e iv e d u n d er t r u s t in stru m e n ts. I t w ould n o t h a v e a u t h o r i t y t o r e c e i v e d e p o s i t s g e n e ra te d out o f funds re c e iv e d in th e c a p a c ity o f a g e n t o r c u s to d ia n , ex cep t as e x p re s s ly p e rm itte d in an e x c e p tio n fo r fu n c tio n s as agent or c u s to d ia n f o r an i s s u e r o f , o r i n v e s t o r i n , s e c u r i t i e s . The B oard n o t e s t h a t t h e New York B a n k in g D e p a r tm e n t h a s d e t e r m i n e d t o p e r m i t q u a l i f i e d o u t - o f - S t a t e b a n k h o l d i n g c o m p a n ie s t o a c q u i r e l i m i t e d p u r p o s e t r u s t c o m p a n ie s i n New Y ork t o f u r n i s h s t o c k t r a n s f e r and r e l a t e d s e r v i c e s f o r i n s t i t u t i o n a l c u s t o m e r s and t o r e c e i v e d e p o s i t s i n c i d e n t a l t h e r e t o . The p r o p o s e d amendment i s i n t e n d e d t o f a c i l i t a t e b a n k h o l d i n g c o m p a n i e s 1 a c q u i s i t i o n s o f t h i s t y p e o f l i m i t e d p u r p o s e t r u s t company. B o th c o m m e rc ia l b a n k s a nd t r u s t c o m p a n ie s a c t a s a g e n t s o r c u s to d ia n s f o r t h e i r c u sto m e rs. D e p o sit t r a n s a c t i o n s i n c i d e n t a l to a g e n c y o r c u s t o d i a n f u n c t i o n s a r e n o r m a l l y c h a r a c t e r i s t i c o f c o m m e rc ia l b an k in g . H ow ever, t h e p r o p o s e d d e p o s i t - t a k i n g a c t i v i t i e s in c id e n ta l to -3p a y m e n ts upon o r t r a n s f e r s o f s e c u r i t i e s w ould a p p e a r t o b e p r o p e r l y i n c i d e n t a l t o a t r u s t company b u s i n e s s . The C o m p t r o l l e r o f t h e C u r r e n c y h a s g r a n t e d a n a t i o n a l b a n k c h a r t e r t o a t r u s t company o r g a n i z e d f o r t h e p u r p o s e o f c a r r y i n g on t h e g e n e r a l b u s i n e s s o f a c o m m e rc ia l b a n k t r u s t d e p a r t m e n t and t o e n g a g e i n such a c t i v i t i e s a s a r e n e c e s s a r y , i n c i d e n t o r r e l a t e d t o such b u s in e s s . T r u s t c o m p a n ie s t h a t do n o t e n g a g e i n t h e b u s i n e s s o f m ak in g c o m m e rc ia l l o a n s w ould n o t b e ' ’b a n k s " w i t h i n t h e m e a n in g o f s e c t i o n 2 ( c ) o f t h e Bank H o l d i n g Company A c t (1 2 U .S .C . banks. 1 8 4 1 ( c ) ) , e v e n th o u g h c h a r t e r e d a s n a t i o n a l The p r o p o s e d amendment w o u ld p e r m i t bank h o l d i n g c o m p a n ie s t o a c q u i r e u n d e r s e c t i o n 4 ( c ) ( 8 ) o f t h e A c t f e d e r a l l y c h a r t e r e d t r u s t c o m p a n ie s t h a t a r e n o t " b a n k s " , a nd s u c h t r u s t c o m p a n ie s w o u ld b e g o v e rn e d by t h e same R e g u l a t i o n Y l i m i t a t i o n s on d e p o s i t - t a k i n g a s w o u ld a p p l y t o S t a t e c h a r t e r e d t r u s t c o m p a n ie s a c q u i r e d u n d e r t h a t s e c t i o n . The p r o p o s e d amended s u b p a r a g r a p h ( a ) ( 4 ) o f § 2 2 5 .4 o f R e g u l a t i o n Y w ould r e a d a s f o l l o w s : § 2 2 5 .4 N on b a n k in g a c t i v i t i e s . (a) A c t i v i t i e s c l o s e l y r e l a t e d t o b a n k i n g o r m a n a g in g o r c o n tro llin g banks. .......... The f o l l o w i n g a c t i v i t i e s h a v e b e e n d e t e r m i n e d by t h e B o a rd t o b e s o c l o s e l y r e l a t e d t o b a n k i n g o r m an a g in g o r c o n t r o l l i n g b a n k s a s t o be a p r o p e r i n c i d e n t t h e r e t o : * "(4 ) * -k * * p e r f o r m i n g o r c a r r y i n g on any one o r m ore o f t h e f u n c t i o n s o r a c t i v i t i e s t h a t may b e p e r f o r m e d o r c a r r i e d on b y a t r u s t company ( i n c lu d in g a c t i v i t i e s o f a f id u c ia r y , agency, or c u s to d ia n n a tu r e ) , in th e -4- m anner a u t h o r i z e d by f e d e r a l o r S t a t e la w , so l o n g a s t h e i n s t i t u t i o n d o e s n o t b o t h a c c e p t demand d e p o s i t s a nd make c o m m e rc ia l l o a n s , a n d d o e s n ot a c ce p t d e p o s its o th e r th an ( i ) d e p o s i t s t h a t a r e g e n e r a t e d fro m t r u s t fu n d s n o t c u r r e n t l y i n v e s t e d and a r e p r o p e r l y s e c u re d t o t h e e x t e n t r e q u i r e d b y la w o r ( i i ) d e p o s it s r e p r e s e n t i n g funds r e c e iv e d f o r a s p e c i a l u se in th e c a p a c ity o f an a g e n t o r c u s to d ia n f o r an i s s u e r o f , o r i n v e s t o r i n , s e c u r i t i e s , s u c h a s p a y i n g and d i v i d e n d d i s b u r s i n g a g e n t , s e c u r i t i e s c l e a r i n g a g e n t , a nd s i m i l a r c a p a c i t i e s , a nd n o t em p lo y e d b y o r f o r t h e a c c o u n t o f a c u s to m e r i n t h e m anner o f a g e n e r a l p u r p o s e c h e c k i n g a c c o u n t o r b e a r i n g i n t e r e s t .......... " To a i d i n t h e c o n s i d e r a t i o n o f t h i s m a t t e r by t h e B o a r d , i n t e r e s t e d p e rs o n s a r e i n v i t e d t o su b m it r e l e v a n t d a t a , v ie w s , o r a r g u m e n t. Any s u c h m a t e r i a l s h o u l d be s u b m i t t e d i n w r i t i n g t o t h e S e c r e t a r y , B o ard o f G o v e r n o rs o f t h e F e d e r a l R e s e r v e S y s te m , W a s h in g to n , D. C. 2 0 5 5 1 , t o be r e c e i v e d n o t l a t e r t h a n A u g u s t 6 , 1 9 7 3 . By o r d e r o f t h e B o ard o f G o v e r n o r s , J u n e 2 8 , 1973. ( S i g n e d ) C h e s t e r B. F e l d b e r g Chester B. Feldberg Secretary of the Board [SEAL]
@FedFRASER