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F ederal
reserve
Ba n k
DALLAS, TEXAS
of
D allas
75222
Circular No. 83-147
December 13, 1983
REGULATION Y
BANK HOLDING COMPANIES AND CHANGE IN BANK CONTROL
(Proposed Amendment)
TO ALL MEMBER BANKS,
BANK HOLDING COMPANIES
AND OTHERS CONCERNED IN THE
ELEVENTH FEDERAL RESERVE DISTRICT:
The Board of Governors of the Federal Reserve System has issued for
public comment a proposed amendment to Regulation Y which would eliminate the
requirement that bank holding companies engaging in credit life, accident and
health insurance underwriting must provide rate reductions or increased policy
benefits.
Details of the proposal are provided in the Board's press release
and Federal Register notice accompanying this circular.
Comments concerning this proposal should be submitted in writing to
Mr. William W. Wiles, Secretary, Board of Governors of the Federal Reserve
System, Washington, D.C., 20551. All correspondence must refer to Docket
No.R-0491 and be received no later than January 24, 1984.
David W.
Questions regarding the contents of this circular may be directed to
Dixon of the Holding Company Supervision Department, Extension 6182.
Additional copies of this circular will be furnished upon request
the Public Affairs Department, Extension 6289.
to
Sincerely yours
William H. Wallace
First Vice President
This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org)
Banks and others are encouraged to use the following incoming W A TS numbers in contacting this Bank:
1-800-442-7140 (intrastate) and 1-800-527-9200 (interstate). For calls placed locally, please use 651 plus the
extension referred to above.
FEDERALRESERVEpressrejease
For immediate r e l e a s e
November 18, 1983
The Feder al Reserve Board t o da y r e q u e s t e d comment on a proposed amendment
t o i t s Re g u l a t i o n Y - - Bank Holding Companies and Change in Bank Control - - t o
e l i m i n a t e t h e r e q u i r e me n t t h a t hank hol d i ng companies engagi ng in c r e d i t l i f e ,
a c c i d e n t and h e a l t h i n s u r a n c e u n d e r w r i t i n g must p r o v i d e r a t e r e d u c t i o n s or
increased policy b e n e f i t s .
The Board has r e q u i r e d e v i d e n c e of such s p e c i f i c p u b l i c b e n f i t s i n c e i t
approved t h e u n d e r w r i t i n g of c r e d i t i n s u r a n c e by bank n o l d i n y companies in 1972.
The r e q u i r e me n t grew out of t h e s t a t u t o r y r u l e t h a t bank h o l d i n g company a c t i v i t i e s
must r e s u l t i n p u b l i c b e n e f i t s t h a t outwei gh any a d v e r s e e f f e c t s , and t h e B o a r d ' s
f i n d i n g t h a t t h e r e a r e p o t e n t i a l a d v e r s e e f f e c t s a s s o c i a t e d wi t h t h e u n d e r w r i t i n y of
c r e d i t i n s u r a n c e by bank hol d i n g company s u b s i d i a r i e s .
Corrimentors on a r e c e n t pr opos al by t h e Board t o over haul R e g u l a t i o n Y,
as p a r t of t h e B o a r d ' s r e g u l a t o r y improvement program, have s u g g e s t e d t h a t t h i s
r e q u i r e me n t be e l i m i n a t e d .
These commentors s t a t e d t h a t in t h e i r view t h e r e q u i r e -
ment p u t s bank h ol di ng companies a t a d i s a d v a n t a g e wi t h r e s p e c t t o o t h e r p r o v i d e r s
of t h i s s e r v i c e and t h a t t h e y know of no s i g n i f i c a n t e v i d e n c e t h a t p r o v i s i o n o f such
i n s u r a n c e by bank hol di ng companies has r e s u l t e d in t h e a d v e r s e e f f e c t s on t h e p u b l i c
c o n s i d e r e d by t h e Board in i t s 1972 d e c i s i o n .
Si nce t h e Board i s c o n t i n u i n g t o r e c e i v e a p p l i c a t i o n s t o engage in t h i s
a c t i v i t y , under t h e Bank Holding Act and t h e r e c e n t Bank S e r v i c e C o r p o r a t i o n Act , t h e
Board i s p u b l i s h i n g f o r comment a pr opo s a l t o e l i m i n a t e t h e r e q u i r e m e n t .
The Bo a r d ' s n o t i c e , r e q u e s t i n g comment by J a n u a r y 24, 1984, i s a t t a c h e d .
Attachment
FEDERAL RESERVE SYSTEM
Regulation Y
[12 C.F.R.
Part 225]
Docket No. R-0491
BANK HOLDING COMPANIES AND CHANGE IN BANK CONTROL
Nonbanking Activity:
Elimination of Rate
Reduction Requirement from Credit Life
and Credit Accident and Health Insurance
Underwriting
AGENCY:
Board of Governors of the Federal Reserve System.
ACTION:
Proposed Rulemaking.
SUMMARY:
The Board is seeking public comment regarding a
revision of 12 C.F.R. Part 225 of the Board's Regulation Y by
removing footnote 10a from section 225.4 ( a )(10).
That note
requires an applicant seeking approval to engage in the
activity of credit life and credit accident and health
insurance underwriting to provide rate reductions or increased
policy benefits for such insurance.
This proposed
rulemaking is a result of
the
suggestions of several commentors to the Board's recent
proposal to revise Regulation Y, who advocated elimination of
the
rate
reduction
requirement
from
the
regulation.
Accordingly,
the instant proposal
seeks public comment
regarding the elimination of this specific requirement from
activity 10 of Regulation Y.
The generalized net public
benefits test, of course, would still apply to all applicants
seeking approval under section 4(c)(8) of the Bank Holding
Company Act, 12 U.S.C. § 1843(c)(8), to engage in any activity
listed in Regulation Y.
DATE:
All comments should be received b y the Board
than January 24, 1984.
no
later
ADDRESS:
All comments, which should refer to Docket No. R-0491
should be mailed to William W. Wiles, Secretary, Board of
Governors of the Federal Reserve System, Washington, D. C.
20551, or delivered to room B-2223, 20th and Constitution
Avenue, N. W., Washington, D. C., 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.
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2-
FOR FURTHER INFORMATION CONTACT:
J. Virgil Mattingly,
Associate General Counsel
(202/452-3430); or Michael J.
O'Rourke, Attorney (202/452-3288), Legal Division, Board of
Governors of the Federal Reserve System.
SUPPLEMENTARY INFORMATION:
The Bank Holding Company Act of
1956, as amended 12 U.S.C. § 1841 et seq.
("BHC Act"),
generally prohibits a bank holding company from engaging in
nonbanking activities or acquiring voting securities of a
nonbanking company.
However, section 4(c)(8) of the BHC Act
establishes an exception for activities "which the Board after
due notice and opportunity for hearing has determined (by order
or regulation) to be so closely related to banking or managing
or controlling banks as to be a proper incident thereto."
Under authority of this section, the Board has found by
regulation that
15 nonbanking activities are closely related to
banking within
the meaning of section 4(c)(8).
These
activities are
specified in the Board's Regulation
Y.
12
C.F.R. § 225.
Among the activities approved by the Board in
Regulation Y is acting as underwriter for credit life and
credit accident and health insurance that is directly related
to extensions of credit by the bank holding company system.
12
C.F.R. § 225.4 ( a )(10).
The Board's decision in 1972 to amend
Regulation Y to add this activity followed consideration of the
record of a hearing on the subject of credit insurance
underwriting, together with the Board's prior experience in the
field of bank holding company insurance activities.
In addition to requiring that activities be closely
related to banking, section 4(c)(8) of the BHC Act also imposes
a net public benefits test on bank holding companies seeking to
engage in activities listed in Regulation Y.
That is:
In determining whether a particular activity
is a proper incident to banking or managing
or controlling banks
the Board
shall
consider whether its performance by an
affiliate
of
a holding
company
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.
12 U.S.C. § 1843(c)(8).
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In its 1972
decision adopting as a permissible
nonbanking activity the underwriting of credit life and credit
accident and health insurance, the Board determined that there
were potential adverse effects associated with its performance
b y bank holding companies.
Therefore, in order to outweigh
these adverse effects, and to satisfy the net public benefits
test contained in
the BHC Act, the Board required b y regulation
that bank holding
companies desiring to engage in the activity
provide rate reductions or increased policy benefits.
The
Board's regulation states:
To assure that
engaging in the
underwriting of credit life and credit
accident and health insurance can reasonably
be expected to be in the public interest,
the Board will only approve applications in
which
an
applicant
demonstrates
that
approval will benefit the consumer or result
in other public benefits.
Normally such a
showing
will be made b y a projected
reduction in
rates or increase in policy
benefits
due
to bank holding
company
performance of this service.
12 C.F.R.
§ 225 .4( a)(10) n.lOa.
In 1976, the Board issued an
interpretation
of
Regulation Y that imposed upon bank holding companies engaged
in credit life and credit accident and health insurance
underwriting the obligation to maintain these rate reductions
or increased policy benefits on a continuing basis.
12 C.F.R.
§ 225.135(d).
To implement these requirements, Board staff has
published schedules of the rate reductions required in
specified states in order to obtain the Board's approval.
As a result of these actions, all applications to
engage in credit insurance underwriting approved by the Board
since 1971 have contained rate reductions.i/
However, in
connection with the Board's recent proposal to revise
Regulation Y, several commentors suggested that the Board
eliminate the requirement imposed by note 10a of Regulation Y
that bank holding companies engaging in this activity provide
rate reductions or increased policy benefits.
These commentors
alleged that this requirement placed bank holding company
providers of this service at a competitive disadvantage to
other participants in the market and that no significant
i./ At least two applications also have contained commitments
to increase policy benefits by an actuarily-assigned value in
substitution for a larger rate reduction amount.
As indicated
above, the Board specifically authorized such increases in
policy benefits in lieu of a rate reduction.
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evidence of the potential adverse effects considered by the
Board eleven years ago has come to light.
Consequently, on
November 1, 1983, the Board announced in connection with its
approval of the application under the Bank Service Corporation
Act by Louisiana National Bank to underwrite credit life and
credit accident and health insurance, that the Board promptly
would publish for comment a proposal to eliminate this
requirement
from Regulation Y.
The proposed
rulemaking
effectuates the Board's announcement.
Regulatory Flexibility Act Analysis
The Board certifies that adoption of this proposal
would not have a significant economic impact on a substantial
number of small entities within the meaning of the Regulatory
Flexibility Act (5 U.S.C. § 605(b)).
Indeed, to the extent
that a rate reduction is not required in order to demonstrate
net public benefits, the proposal may have a positive economic
impact on any company wishing to engage in the activity.
This
proposal would liberalize the requirements to engage in this
activity for all bank holding companies; yet no bank holding
company could commence this activity without first applying to
the Board under the procedures and safeguards of section
4(c)(8) of the BHC Act.
LIST OF SUBJECTS IN 12 C.F.R.
PART 225
Banks,
Banking,
Federal
Reserve System,
companies, Securities, Reporting requirements.
PART 225 - BANK HOLDING COMPANIES
AND CHANGE IN BANK CONTROL
Holding
For the reasons set out in the preamble, and pursuant
to the Board's authority under sections 4(c)(8) and 5(b) of the
Bank Holding Company Act of 1956, as amended (12 U.S.C.
§§ 1843(c)(8) and 1844(b)), the Board proposes to revise
12 C.F.R. Part 225 of the Board's Regulation Y by removing
footnote 10a from section 225.4 ( a )(10), to read as follows:
§ 225.4
Nonbanking activities
(a)
* * *
(10)
Acting as underwriter for credit life insurance
and credit accident and health insurance which is directly
related to extensions of credit b y the bank holding company
system.
By order of the Board of
Reserve System, November 18, 1983.
Governors
of
the
Federal
(signed) William W. Wiles
William W. Wiles
Secretary of the Board
@FedFRASER