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Federal R eserve Bank
OF DALLAS
W IL L IA M
H. W ALLACE
FIRST V IC E PR ES ID EN T
AND CH IEF O PER ATING O FFIC ER
DALLAS, TEXAS 75222
October 16, 1987
C i r c u l a r 87-73
TO:
The Chief Executive O f f i c e r o f a l l
member banks, bank holding companies
and ot h e rs concerned in the
Eleventh Federal Reserve D i s t r i c t
SUBJECT
Request for public comment on Regulation Y - Bank Holding Companies
and Change in Bank Control
DETAILS
The Board of Governors of t he Federal Reserve System has req u es t ed
comment on a proposed amendment to R egul ati on Y on whether i t should permit
bank holding companies to a cq ui re h eal t h y t h r i f t i n s t i t u t i o n s and t he terms
and c o n d it io n s under which such a c q u i s i t i o n s might be p erm i t t ed .
Comments should be address ed t o Mr. William W. Wiles, S e c r e t a r y ,
Board of Governors of the Federal Reserve System, Washington, D.C. 20551. All
correspondence should r e f e r to Docket No. R-0614 and must be recei v ed by
November 20, 1987.
ATTACHMENTS
The Board's pre ss r e l e a s e and the m a t e ri a l as pu bl is h ed in the
Federal R e g i s te r are a t t a c h e d .
MORE INFORMATION
For f u r t h e r in fo rm a tio n , p l e a s e c o n t a c t Basil Asaro a t (214)
698-4345, Gayle Teague a t (214) 651-6481, or Dean A. Pankonien o f t he Legal
Department a t (214) 651-6228. I f you wish t o r e c ei v e a d d i t i o n a l cop ies of
t h i s c i r c u l a r , ple ase c o n t a c t our Pu bl i c A f f a i r s Department a t 651-6289.
S i n c e re l y y o u rs ,
^
.
For additional copies of any circular please contact the Public Affairs Department at (214) 651-6289. Banks and others are
encouraged to use the following incoming WATS numbers in contacting this Bank (800) 442-7140 (intrastate) and (800)
527-9200 (interstate).
This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org)
FEDERAL RESERVE press release
•SSK5?r
September 21, 1987
For immediate r e l e a s e
The Federal Reserve Board today requ est ed comment on whether i t
should permit bank holding companies t o acq u i re h eal t h y t h r i f t i n s t i t u t i o n s
and the terms and c o n d iti on s under which such a c q u i s i t i o n s might be p e rm i t t e d .
Comment is reque ste d by November 20, 1987.
C u rr e n tl y , a c q u i s i t i o n of a h eal t h y t h r i f t i n s t i t u t i o n i s not a
p er m is s i b le a c t i v i t y f o r a bank holdinq company under t h e Board's r u l e s .
However, changes in the economic and re g u l a t o ry environment have prompted
th e Board to seek comment on whether t h i s p ol i cy should be changed.
The Bank Holdinq Company Act does not s p e c i f i c a l l y a u t h o ri z e or
p r o h i b i t bank holdinq companies from a cq u i ri n g t h r i f t i n s t i t u t i o n s .
However,
in 1977 with th e O.H. Baldwin d e c i s i o n , t h e Board determined t h a t o p erat i o n
of a heal thy t h r i f t i n s t i t u t i o n was c l o s e l y r e l a t e d t o banking but was not a
"proper i n c id e n t t h e r e t o . "
Accordi ngly, t h e Board has r e s t r i c t e d i t s
approvals to a c q u i s i t i o n s of f a i l i n g t h r i f t s on ly .
The most important mot iv ati on fo r r e c o n s i d e r a t i o n o f t h e D.H. Baldwi
d e ci s i on is the major developments in t h e i n t e r - s t a t e p ro v i s i o n of d e p o s i t o r y
i n s t i t u t i o n s s e r v i c e s both by banks and t h r i f t s .
In a d d it io n t o comment on whether bank h ol ding companies may acq u i r e
and o pe r a te he a l thy t h r i f t s , t h e Board re q u e s t s comment on t h e terms and
c o n d iti on s under which t h i s a c t i v i t y might be allowed.
The Board' s n o t i c e i s a t t a c h e d .
-
Attachment
0-
36041
Proposed Rules
Federal Register
Vol. 52. No. 186
Friday, September 25, 1987
FOR FURTHER INFORMATION CONTACT:
FEDERAL RESERVE SYSTEM
12 CFR Part 225
[R egulation Y; D ocket No. R-06141
Bank Holding Companies and Change
in Bank Control; Board Policy
Regarding the Acquisition and
Operation of Thrift Institutions By
Bank Holding Companies
Board o f Governors o f the
Federal Reserve System.
a c t io n : Solicitation of public comments.
agency:
The Federal Reserve Board is
soliciting comment on whether, in light
of changing economic and regulatory
circumstances, the Board should
determine that the acquisition and
operation of thrift institutions by bank
holding companies is. as a general
matter, a proper incident to banking
under the Bank Holding Company Act,
and, on this basis, a permissible activity
for bank holding companies under the
Act and Regulation Y. 12 CFR 225J£5.
The Board has previously determined
that the operation of a thrift institution
is closely related to banking, but has
permitted bank holding companies to
acquire thrifts only where the
acquisition involved a failing thrift
institution. The Board also seeks
comments on the terms and conditions
under which bank holding companies
should be permitted to acquire and
operate health thrift institutions, if it
should determine to allow such
acquisitions.
DATE: Comments must be received by
November 20,1987.
ADORESS: All comments, which should
refer to Docket No. R-0614, should be
mailed to William W. Wiles, Secretary,
Board of Governors of the Federal
Reserve System. Washington, DC 20551.
or delivered to Room B-2223, 20th &
Constitution Avenue NW. Washington,
DC, between 8:45 a.m. and 5:15 p.m.
weekdays. Comments may be inspected
in Room B-1122 between 8:45 a.m. and
5:15 p.m. weekdays.
su m m a ry :
J. Virgil Mattingly, Deputy General
Counsel (202/452-3430), Scott G.
Alvarez, Senior Counsel (202/452-3583),
Michael J. O’Rourke, Senior Attorney
(202/452-3288), Legal Division: Roger
Cole, Manager (202/452-2818). or Molly
Wassom, Senior Financial Analyst (202/
452-2305), Division of Banking
Supervision and Regulation. Board of
Governors of the Federal Reserve
System, Washington, DC 20551. For the
hearing impaired only,
Telecommunications Service for the
Deaf, Eamestine Hill or Dorothea
Thompson, (202/452-3544).
SUPPLEMENTARY INFORMATION:
I. Introduction
The purpose of this request for
comment is to assist the Board in its
review of Board policy regarding the
acquisition and operations of thrift
institutions by bank holding companies,
and to obtain the commenters’ view as
to whether any changes to that policy
are appropriate in light of changing
economic and regulatory circumstances.
The Board is now considering adding to
the list of permissible nonbanking
activities in Regulation Y the acquisition
and operation of thrift institutions. To
date, however, the Board has approved
only the acquisition of failing thrift
institutions, and not thrift institutions
generally. Its rationale for adopting that
policy was articulated in the Board’s
1977 D.H. Baldwin decision,1 which is
discussed below.
O. Background
A. Statutory and Regulatory Framework
The BHC Act does not specifically
authorize or prohibit bank holding
companies from acquiring thrift
institutions. Rather, the Act contains a
general prohibition against bank holding
companies acquiring companies engaged
in any activity unless the Board has
determined the activity to be **so closely
related to banking * * * as to be a
proper incident thereto" within the
meaning of section 4(c)(8) of the BHC
Act 12 U.S.C. 1843(c)(8). Section 4(c)(8)
thus imposes a two step test for
determining the permissibility of
nonbanking activities for bank holding
companies: (1) Whether the activity is
closely related to banking; and (2)
1 DJi. Baldwin Company. S3 Federal Reserve
Bulletin 280 (1967).
whether the activity is a proper incident
to banking—that is. whether the
proposed activity can reasonably be
expected to produce benefits to the
public that outweigh possible adverse
effects.2
When the Board adopted the initial
list of permissible nonbanking activities
for bank holding companies in 1971. it
did not include the operation of an SAL.
(36 Federal Register 1077 (1971)).
Notwithstanding its 1971 decision not to
include the operation of S&Ls in the
Regulation Y laundry list of permissible
nonbanking activities, the Board in 1972
and 1975 approved applications from
New England thrifts to become bank
holding companies by acquiring
commercial banks, in view of the
unique, longstanding affiliation between
thrifts and commercial banks in that
region.3 With these few exceptions,
prior to 1982 the Board did not permit
bank holding companies to acquire thrift
institutions. The reasons for this policy
were articulated in the Board’s 1977
order denying an application by D.H.
Baldwin, at the time a registered bank
holding company, to retain ownership of
a healthy savings and loan association it
had acquired in 1969 before it became a
banking holding company,*
B. The D.H. Baldwin Case
In D.H. Baldwin, the Board
determined that as a general matter
operating an S&L is closely related to
banldng, but ruled that such activities
should not be regarded as a proper
incident to banking: that is. as a general
matter the public benefits associated
with the affiliation of a bank and a thrift
were not sufficient to outweigh the
adverse effects of such an affiliation.
This determination was based on three
factors: (1) The perception of a
competing and conflicting regulatory
framework governing banks and S&Ls;
(2) the possibility that cross-industry
acquisitions would undermine the
perceived rivalry between the banking
and thrift industries; and (3) the
* See Board of Governors v. Investment Company
Institute. 450 U.S. 46 (1984): National Courier Ass'n
v. Board of Governors, 516 F.2d 1229 (D.G. Cir. 1975).
3 Newport Savings and Loan Association. 58
Federal Reserve Bulletin 313 (1972); Old Colony CoOperative Bank. 58 Federal Reserve Bulletin 417
(1972); Profile Bancshares. Inc.. 01 Federal Reserve
Bulletin 901:1975).
* D.H. Baldwin Company, 63 Federal Reserve
Bulletin 280 (1977).
36042
Federal Register / Vol. 52, No. 186 / Friday, September 25, 1987 / Proposed Rules
possibility that such acquisitions could
undermine the interstate banking
restrictions of the Douglas Amendment
to the Bank Holding Company Act
(“Act" or “BHC Act”). Since that time, in
all its orders regarding thrift
acquisitions, the Board has continued to
maintain the position that, as a general
matter, the acquisition of a thrift
institution is not a proper incident to
banking.
C. Worsening Condition of the Thrift
Industry and the First Failing Thrift
Acquisitions
In 1961, in response to worsening
conditions in the thrift industry, the
Board informed the Congress that it
might be forced to allow bank holding
companies to acquire failing thrifts, and
requested passage of the so-called
Regulators Bill, which provided a series
of procedures and priorities to guide the
Bank Board’s discretion in approving
such acquisitions and otherwise to
provide capital assistance to troubled
thrifts.
Before the proposed legislation could
be enacted, however, the Board was
faced with two proposals by bank
holding companies to acquire failing
thrifts, proposals which necessitated the
Board’s immediate consideration in
order to avoid the probable failure of the
institutions. The first. Scioto Savings
Association in Ohio, was Acquired by an
instate bank holding company at the
urging of the Ohio Thrift Commissioner.6
In the second,6 the Federal Home Loan
Bank Board requested that the Board
allow Citicorp to acquire Fidelity
Federal Savings and Loan of San
Francisco. To allay the concerns of
interested trade groups, state regulatory
authorities, competing banks, members
of Congress, community groups and
others, whose opposition could have
required the Board to conduct a time
consuming formal hearing on the
application and thus jeopardize the
attempt to rescue the institution, the
Board imposed a series of conditions on
the operations of an S&L acquired by a
bank holding company. Several of these
conditions, such as continued operation
of the institution as a thrift and
branching restrictions, reflect the terms
or spirit of the then-pending Gam-St
Germain Depository Institutions Act of
1982. As part of this process, the Board
also imposed conditions that limited
transactions and operations between a
thrift institution owned by a bank
holding company and its affiliates.
* Interstate Financial Corporation (Scioto Savings
Association). 68 Federal Reserve Bulletin 316 (1962).
* Citicorp (Fidelity Federal Savings and Loan), 68
Federal Reserve Bulletin 656 (1982).
These conditions, known as the tandem
operations restrictions, have been
imposed on all thrift acquisition since
that time.7 The tandem operation
restrictions will be reviewed below with
respect to the Board's request for
Comment regarding the terms and
conditions under which bank holding
companies should acquire and operate
thrift instiutions, should the Board
determine that, as a general matter, this
activity is a proper incident to banking.
D. The 1982 Gam-St Germain Act
Shortly after the Board's approval of
the Fidelity acquisition by Citicorp,
Congress passed the Gam-St Germain
Depository Institutions Act, which
authorized the purchase of ailing S&LS
by out-of-state bank holding companies,
provided the FSUC follows certain
bidding procedures that gave priority to
intra-industry acquisitions and in-state
organizations. In addition to the bidding
priorities, the Gam-St Germain Act
required that FSLIC minimize the cost
for any S&L rescue; allowed the Board
to waive the notice and hearing
requirements of section 4 of the BHC
Act in approving failing thrift
acquisitions; and excluded FSLICinsured thrifts from the definition of
bank in the Bank Holding Company Act,
thereby permitting such acquisitions
under the interstate banking provisions
of the Douglas Amendment. The act also
expressly limited the expansion of the
acquired S&L to those locations where a
national bank could branch in the state.
Throughout the course of the debate
leading to passage of the Gam-St
Germain Act, the Chairman of the
Federal Reserve Board made clear the
Board’s belief that it could exercise its
existing authority to approve
acquisitions of thrifts by bank holding
companies.8 As a policy matter,
1 Citicorp petitioned the Board for relief from
these conditions. In response, the Board issued a
proposed rulemaking requesting comment on the
tandem restrictions. The Board recently has
rendered its decision on the conditions. See Letter
of William W. Wiles, Secretary. Board of Governors
of the Federal Reserve System, to Patrick Mulhem.
Senior Vice President and General Counsel. Citicorp
(Aug. 10.1987).
■ Chairman Voicker stated that: “One of the
difficulties—a major difficulty—is not that we don’t
have those powers (to authorize bank holding
company acquisitions of thrifts] but that they are
not directed and limited. This bill provides a sense
of priorities. Without it. we would be forced back on
those powers, which I feel quite certain, would open
up broader issues than is probably necessary to
open up at this particular time. This bill gives us the
specific authority to deal just with institutions in
serious difficulty.” The Deposit Insurance
Flexibility Act: Hearing on H.R. 4603 Before the
Subcommittee on Financial Institutions
Supervision. Regulations, and Insurance o f the
House Committee on Banking. Finance and Urban
Affairs. 97 Cong., 1st Sess. 167.181 (1981) ("1981
House Hearings”).
however, the Chairman indicated that
the Board had not yet exercised that
power, because to do so would open up
larger questions of interstate banking
and healthy thrift acqusitions
generally.® This view, that the Board
could exercise existing powers to
approve such acquisitions, was shared
by members of Congress,10 the acting
Comptroller of the Currency,11 the
Department of Justice,12 the Federal
Home Loan Bank Board.16 and groups
opposing the pending legislation such as
the Independent Bankers Association of
America, among others.14 Without
passage of the Gam-St Germain Act, the
Chairman and other indicated the Board
might be forced to use the Board’s more
general powers to approve such
acquisitions.15 and there was doubt
whether, as a legal matter, the Board
could limit its grant of approval to
failing institutions only.
E. Thrift Acquisitions Since the 1982
Gam-St Germain Act
Since passage of the Gam-St Germain
Act in October, 1982, the Board has
continued to approve the acquisition of
failing thrifts, particularly in response to
the Ohio and Maryland thrift crises.16 In
all of these instances, the Board
imposed conditions substantially similar
to those laid out in the First Fidelity
Order. The Board has limited its
approval to acquisitions of failing thrifts
only, and. when presented with an
application by Old Stone Corporation to
* Id. at 177. (refrain from exercising existing
authority.) Chairman Voicker continued his
testimony by stating that if the Board used its
existing authority to allow bank holding companies
to acquire thrifts, it would be acquisition of failing
thrifts. Id., at 191.
10 See e.g.. 127 Cong. Rec. H7798 (daily ed. Oct.
27,1981) (remarks of Rep. Vento): 127 Cong. Rec
H7795 (daily ed. Oct. 27.1981) (remarks of Rep.
Wylie).
** Financial Institutions Restructuring and
Services Act o f 1981:Hearings on S.1686. S i 703,
S.1720. and S. 1721 Before the Senate Committee on
Banking. Housing, and Urban Affairs. 97th Cong. 1st
Sess. 26 (1981) (Part III) (hereafter, the“ 1981 Senate
Hearings. Parts L il and 111”, as appropriate).
12 Conduct o f Monetary Policy: Hearings Before
the House Committee on Banking. Finance and
Urban Affairs. 97th Cong. 1st Sess. 956 (1981)
(hereafter, “1981 House Monetary Policy Hearings”).
191981 House Monetary Policy Hearings at 109.
141981 House Hearings at 88.95.
'• See footnote 9. supra. See also Capital
Assistance Act and Deposit Insurance Flexibility
Act: Hearing on S.2531 and 0L2532 Before the Senate
Committee on Banking. Housing, and Urban Affairs.
97th Cong- 2d Sess. 54 (1982) (hereafter. “1982
Senate Hearings") (remarks of Sen. Riegle): 1982
Senate Hearings at 144 (remarks of Sen D'Amato);
and 1982 Senate Hearings at 369 (remarks of Sen.
Gam).
14 These provisions have recently been renewed
with the passage of the Competitive Equality
Banking Act of 1987. Pub. L. No. 100-86 (enacted
Aug. 10.1987) (*‘CEBA‘*).
Federal Register / Vol. 52, No. 186 / Friday, September 25* 1987 / Proposed Rules
acquire in essence a healthy thrift in
June, 1984, the Board denied the
application.17 Out of the approximately
18 acquisitions of failing thrifts
approved by the Board since 1982,
currently only 7 remain in operation as
thrifts, with the others having been
converted to bank status.
III. The Changing Economic and
Regulatory Climate
This request for comment is prompted
by certain economic and regulatory
changes since 1982 that may implicate
possible changes to the Board's current
bank/thrift policy. First, interstate
banking has become widespread in the
last two years. Approximately 23 states
have authorized (or will authorize
within the next 18 months) nationwide
interstate banking, and only seven
states have not yet authorized either
regional or nationwide interstate
banking. The remaining states have
entered, or are about to enter, into
regional interstate banking compacts. In
addition, the FHLBB has approved over
50 acquisitions by thrifts of failing thrifts
on an interstate basis, and also has
recently allowed interstate branching
under certain circumstances. This
development tends to undermine one of
the basic reasons for the D.H. Baldwin
decision—concern about impairing the
Congressional policy embodied in the
Douglas Amendment.
Second, recent changes in the law
substantially broadening the powers of
thrift institutions may have tended to
erode the distinction between thrift
institions and banks at which the
Board’s conditions were directed. For
example, thrift institutions have in the
past several years been granted broad
powers to conduct additional activities,
including authority to make commercial
and nonhousing related loans and to
accept NOW accounts as well as
demand deposits in certain
circumstances—all services that are
offered by commercial banks. The
elimination of the interest rate
differential has removed another
significant distinction between banks
and thrifts.
Third, it has been publicly reported
that certain thrifts have considered
leaving the FSL1C fund for a number of
reasons. Thrifts, if converted to banks,
may be attractive acquisition vehicles
for bank holding companies to increase
their market share on an intra-state
basis, or as a cost-effective means to
establish a regional banking network.
Thrift institutions may also be priced
more favorably, in terms of multiples of
11 Otd Slone Corporation (Catawba). 70 Federal
Reserve Bulletin 593 (1984).
earnings, than are similarly situated
banks. Moreover, there may be
enhanced incentives for the thrifts
themselves to consider converting their
charter and applying for FDIC
insurance. The imposition of a special
FSL1C insurance premium has been
publicly cited by some thrifts as an
incentive to leave the fund. Although the
recent passage of CEBA imposes a
temporary moratorium on such
conversions, upon its expiration thrifts
would be eligible to convert their
charters and opt for FDIC insurance
upon payment of twice their regular and
annual premiums to the FSLlCr among
other requirements.1* See CEBA, Pub. L
No. 100-86, section 306(h); section
302(b)(4)(B). With this recent increased
interest in the conversion of FSLICinsured thrifts to bank status, the FHLBB
has indicated that such conversions may
affect the FSLlC’s recapitalization plans
by reducing the flow of insurance
premiums to FSLIC.19
Finally, it can be argued that the
Board's existing policy itself serves as
an incentive for healthy thrifts to seek to
leave the FSLIC fund. Under current
Board policy, a bank holding company
wishing to acquire a healthy thrift in the
holding company’s home state or
banking region has no alternative but to
convert the thrift into a bank which it
may acquire,-because the Board’s D.H.
Baldwin policy will not permit the
holding company to acquire and operate
the healthy thrift as a thrift.
Accordingly, in light of the above
factors, it appears that current (and
changing) financial and regulatory
circumstance may warrant a review of
the Board's policies regarding the
acquisition and operation of thrift
institutions by bank holding companies.
The Board requests comment on the
implications of such changing
circumstances for its current policies, as
well as commenters* views on what
additional factors, if any, the Board
should consider in reaching its
determination.
A~ Public Benefits Considerations
Commenters may also wish to
consider the nature of any impact on the
*• O ther provisions of CEBA might serve as a
disincentive for particular thrifts to leave the FSLIC
fund, depending on the extent of that institution's
so-called “secondary reserves”. See New Law
Punishes Thrifts Leaving FSLIC Before 1993, Am.
Banker, Sept. 2.1387. at 3 ("Thrift Article"’).
19 See Testimony of Edwin Cray. Chairman.
Federal Home Loan Bank Board, Before the
Subcommittee on General Oversight and
investigations of the Houm Committee on Banking,
Housing and Urban Affairs 10-13 (May 14.1987):
and a similar statement before the Senate
Committee on Banking. Housing and Urban Affairs
3-4 (May 21.1987).
36043
FSLIC fund if the Board were to approve
the acquisition of healthy thrifts. On the
one hand, it could be argued that Board
approval of the acquisition by bank
holding companies of healthy thrifts
could lower the incentive for those
companies to bid on failing thrift
institutions. On the other hand/bank
holding company acquisition of healthy
thrifts, and their continued operation as
thrifts, could provide the FSUC with a
continued, stable source of insurance
premiums.
At this juncture, it should be noted
that bank holding companies’
acquisition of thrifts has not to date
provided the solution to the problems of
the thrift industry. Currently, in addition
to Citicorp’s 4 S&Ls, only three
additional thrifts acquired by bank
holding companies are still operating as
thrift institutions, and they are relatively
small institutions. Moreover, most thrift
problems to date have been resolved on
a intra-industry basis through mergers
with other S&Ls.
As noted above, one of the important
motivations for a reconsideration of the
DJi. Baldwin decision is the major
developments in the interstate provision
of depository institution services by
both banks and thrifts. Nevertheless,
this development is still circumscribed
by the decisions of most states that have
authorized some form of out-of-state
acquisitions to keep interstate
expansion within specific regions. In
view of the fact that the Board
considered that the D.H. Baldwin
decision was necessary in order to
prevent the undermining of the Douglas
Amendment, the question arises, with
respect to the scope of any authorization
for acquisition of healthy thrifts,
whether the Board should limit the
acquisition of healthy thrifts to those
geographic areas where a bank holding
company would be permitted to buy a
bank under the Douglas Amendment.
Such an approach would allow bank
holding companies to purchase healthy
thrifts in their home state, or in those
states where acquisitions are permitted
because of a regional arrangement, or a
reciprocal or other authorization of
interstate banking. Comment is
requested on whether such a limitation
is necessary to carry out the Board's
original intention of giving effect to the
intent of the Douglas Amendment, and
on whether such a limitation is still
necessary in the light of present
interstate banking arrangements.
Comment is also requested on whether
such a policy would be effective in
accomplishing the public benefits of
encouraging the acquisition of failing
thrifts and of avoiding the creation of
36044
Federal Register / Vol. 52. No. 186 / Friday, September 25. 1987 / Proposed Rules
artificial incentives for healthy thrifts to
withdraw from participation in the
FSLIC.
B. Conditions Under Which the Board
Should Allow the Acquisition and
Operation o f Thrift Institutions
Generally
If the Board should determine that the
operation of a thrift institution as a
general matter is a proper incident to
banking, then the issue remains as to the
terms and conditions under which it
should allow the conduct of this activity.
Commencing with the 1982 acquisition
by Citicorp of Fidelity Federal Savings
and Loan of San Francisco and
continuing to the present, the Boaid has
imposed a series of conditions on the
operation of thrift institutions by bank
holding companies. These conditions
were imposed in direct response to the
concerns voiced by banking
organizations, thrift institutions, their
trade groups, state regulators, and
others opposed to the acquisitions that:
(1) The bank holding companies would
divert funds from the S&Ls and housing
needs in the home states of the S&Ls to
other areas served by the bank holding
company or its affiliates; (2) the bank
holding companies would use the S&Ls
to advance the business or operations of
other holding company subsidiaries; (3)
the acquisitions would erode interstate
banking prohibitions and the statutory
distinctions between banks and thrift
institutions; (4) the thrifts would be
operated as banks or branches of bank
affiliates in violation of statutory
limitations on interstate banking and
bank branching; and, (5) the acquisitions
would give the bank holding company
and its S&Ls an unfair competitive
advantage over other banks and thrifts.
Among the conditions established
were requirements that:
(1) The bank holding company would
operate the S&Ls as savings and loan
associations having as their^rimary
purpose the provision of residential
housing credit*
(2) The S&Ls would not engage in any
activities not permissible for a bank
holding company;
(3) The S&Ls would not establish new
branches at locations not permissible for
national or state banks located in the
state where the S&L is located (a
specific requirement of the Gam-St
Germain Act. which authorizes
acquisitions by bank holding companies
of failing thrifts);
(4) The S&Ls would be operated as
separate independent, profit-oriented
corporate entities and would not be
operated in tandem with any other
subsidiary of the bank holding company.
In order to carry out this condition, the
bank holding company and S&Ls would
limit their operations so that:
(a) No banking or other subsidiary of
the bank holding company would link its
deposit-taking activities to accounts at
the S&Ls in a sweeping arrangement or
similar arrangement;
(b) The^5&Ls would not directly or
indirectly solicit deposits or loans for
any other subsidiary of the bank holding
company and the bank holding company
and its subsidiaries would not solicit
deposits or loans for the S&Ls;
(5) To the extent necessary to insure
independent operation of the S&L and
prevent the improper diversion of funds,
the S&Ls would not engage in any
transactions with the bank holding
company or its other subsidiaries
without prior approval of the
appropriate Federal Reserve Bank:
(6) The S&L would not establish or
operate remote service units at any
location outside of the home state Qf the
S&L;
(7) The bank holding company would
not change the name of the S&L to
include the word “bank" or any other
term that might confuse the public
regarding the S&Ls status as a nonbank,
thrift institution; and
(8) The S&L would not convert its
charter to a bank charter or a state thrift
charter without prior Board approval.
Board approvals of all thrift
acquisition by bank holding companies
since 1982 have contained substantially
similar restrictions. In response to a
request by Citicorp for relief from the
tandem operation restrictions
(conditions 4 and 5 above), the Board
requested public comment on whether it
should retain, modify or remove the
fourth and fifth conditions.20
On August 10th of this year, the Board
granted certain limited relief from those
restrictions, principally with respect to
allowing such tandem operations where
a bank holding company could
otherwise acquire and operate a
commercial bank in the state where the
thrift is located, on the basis that such
joint operations would not implicate the
board's concerns regarding the
preservation of the integrity of the
Douglas Amendment in such
situations.21 The Board also allowed the
30 Citicorp contended that the requested relief is
necessary to enable its S&Ls to offer a broader
range of services and to utilize the advantages
inherent in the bank holding company structure
(particularly, economies of scale and crossmarketing) in order to maintain its S&Ls as
competitive institutions in the S&L industry.
81See Letter of William W. Wiles. Secretary.
Federal Reserve Board, to Patrick Mulhern. Senior
Vice President and General Counsel. Citicorp (Aug.
10.1987).
Citicorp S&L to affiliate with the
Citishare ATM switch in order to reduce
the cost to the thrifts of joining certain
ATM networks.
At this time in connection with the
proposed addition of the operation of a
thrift insitution to Regulation Y’s list of
permissible nonbanking activities, the
Board will consider more generally the
terms and conditions under which bank
holding companies may be permitted to
acquire and operate thrift institutions.
The first and third of these conditions
listed above—continued operation of the
thrift as a thrift, and restrictions on
establishment of new thrift branches to
those locations permissible for banks in
the state—reflect the terms or spirit of
the Gam-St Germain Act emergency
thrift acquisition provisions. Retention
of the first condition would reflect the
Congressional intent behind that Act to
maintain a separate thrift industry to
serve the nation's housing needs. The
limitation on branching except as
permitted for national banks (the third
condition) appears necessary to
maintain the integrity of the Gam-St
Germain Act’s emergency thrift
acquisition provisions. If a bank holding
company could acquire a healthy thrift
without such a branching limitation, the
incentive for bank holding companies to
acquire failing thrifts would decrease,
and the cost to the FSUC of resolving
those situations could well increase.
Finally, commenters should direct their
attention to whether these conditions
are necessary to preserve the integrity
of the Douglas Amendment to the BHC
Act, which reserves to the states the
decision to allow out-of-state bank
holding companies to acquire banking
institutions in the state. Continued
imposition of the second condition—that
a thrift subsidiary of a bank holding
company should engage only in
activities permissible for bank holding
companies—is required by the BHC
Act.22
The Board is prepared to entertain
comments with respect to any terms or
conditions under which bank holding
companies may acquire and operate
thrift institutions.
Conclusion:
In sum, the Board believes that
changing economic and regulatory
circumstances render it appropriate to
review the Board’s overall policy
regarding the acquisition and operation
of thrift institutions by bank holding
companies.
23 Central Pacific Corporation, 68 Federal
Reserve Bulletin 382 (1982).
Federal Register / Vol. 52, No. 186 / Friday, September 25. 1987 / Proposed Rules
The Board will consider the following
options with respect to this issue:
1. Maintain the current D.H. Baldwin
policy;
2. Modify the D.H. Baldwin policy to
allow the acquisition of thrifts where a
bank holding company could otherwise
own a bank; and
3. Overrule the D.H. Baldwin policy
and allow the acquisition of healthy
thrifts nationwide.
The Board requests comment on the
advisability of selecting one of these
options, or the availability of additional
courses of action for its consideration.
The Board also requests comment on the
terms and conditions under which thrift
institutions may be acquired and
operated by bank holding companies, if
the Board determines to allow such
acquisitions a general matter.
Regulatory Flexibility Act Analysis
This proposal to expand the
permissible nonbanking activites of
bank holding companies is not expected
to have a significant economic impact
on a substantial number of small
business entities within the meaning of
the Regulatory Flexibility Act (5 U.S.C.
601 et seq.). The Board is required by
section 4(c)(8) of the BHC A ct 12 U.S.C.
1843(c)(8), to determine whether
nonbanking activites are closely related
to banking and a proper incident
thereto, and thus are permissible for
bank holding companies. This proposal,
if adopted, would permit bank holding
companies to acquire and operate
healthy thrift institutions—an activity
bank holding companies are not now
permitted to conduct. The proposal does
not impose more burdensome
requirements on bank holding
companies than are currently
applicable, and these provisions provide
no barrier to meaningful participation by
small bank holding companies in the
proposed activity.
The Board notes that there are not a
significant number of small bank
holding companies engaged in the
operation of thrift institutions at this
time. As noted, bank holding companies
have not previously been permitted to
acquire healthy thrift; the proposal, if
adopted, would expand the powers of
bank holding companies by authorizing
bank holding companies to acquire
healthy, in addition to failing, thrift
institutions.
List of Subjects in 12 CFR 225
Banks, banking. Federal Reserve
System. Holding companies. Reporting
and recordkeeping requirements.
For the reasons set out in this notice,
and pursuant to the Board’s authority
under section 5(b) of the Bank Holding
Company Act of 1956, as amended (12
U.S.C. 1844(b)), the Board solicits
comment regarding the possible
amendment of 12 CFR Part 225.
The Board solicits comment regarding
a proposed amendment to § 225.25(b), to
add a paragraph (9) to the Board’s list of
permissible nonbanking activiites,
which may read as follows:
(9) Thrift Institutions. Acquiring and
operating thrift institutions, including
savings and loan associations, building
and loan associations, and FSLIC—
insured savings banks, so long as the
institution is not a bank.
In connection with solicitation of
comment regarding a possible
amendment to Regulation Y to authorize
the acquisition and operation of healthy
thrift institutions, the Board also seeks
comment regarding the terms and
conditions which the proposed activity
should be conducted, should the Board
determine to allow such acquisitions as
a general matter. In that regard, the
commenters* particular attention is
drawn to the terms and conditions
specified above that the Board
traditionally has imposed on failing
thrift acquisitions, and, as well, the
Board’s August 10,1987 determination to
grant certain limited relief from those
conditions.
Board of Governors of the Federal Reserve
System. September 18.1987.
James McAfee,
Associate Secretary of the Board.
[FR Doc. 87-21980 Filed 9-24-87; 8:45 am]
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