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F edera l Reser ve Ba n k
DALLAS, TE X A S
of
D allas
7S222
C r u a No. 80-132
iclr
J l 7 1980
uy ,
REGULATION Y
BANK HOLDING COMPANIES AND CHANGE IN BANK CONTROL
Notice of Proposed Rulemaking Relating
To Nonbanking Activities
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
comment, a proposal to add a new nonbanking activity to the list of those
permissible for bank holding companies. The proposal would allow bank holding
companies to perform real estate advisory and appraisal services. This proposal
was made in connection with the application by First Chicago Corporation,
Chicago, Illinois to retain shares of its subsidiary, Real Estate Research
Corporation, Chicago, Illinois.
Printed on the following pages is a copy of the Board's notice as
submitted to the Federal Register. Any comments or views should be sent in
writing to Mr. Theodore E. Allison, Secretary, Board of Governors of the Federal
Reserve System, Washington, D.C. 20551. All material submitted concerning the
proposal should be received no later than August 1, 1980 and refer to Docket No.
R-0310.
Any questions concerning the contents of this circular should be
directed to the Attorney's Section of our Holding Company Supervision De
partment, Ext. 6182. Copies of the Board's Order regarding the application by
First Chicago Corporation will be made available upon request to the Holding
Company Supervision Department of this Bank.
Sincerely yours,
Robert H. Boykin
First Vice President
Banks and others are encouraged to use the following incoming W A T S 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.
This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org)
TITLE 12 —
CHAPTER II —
SUBCHAPTER A —
BANKS AND BANKING
FEDERAL RESERVE SYSTEM
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
[Regulation Y]
[Docket No. R-0310]
PART 225 — BANK HOLDING COMPANIES AND
CHANGE IN BANK CONTROL
Application to Continue to Engage in Real Estate Advisory
Services and Real Estate Appraisal Services and of
Possible Rulemaking with Respect Thereto
AGENCY:
Board of Governors of the Federal Reserve System.
ACTION:
Notice of application and proposed rule.
SUMMARY: In connection with an application by First Chicago Corporation,
Chicago, Illinois, to retain the shares of a subsidiary, the Board has
been requested to add to the list of activities permissible for bank
holding companies certain real estate advisory and appraisal services.
The Board requests comments as to whether the proposed activity of
aperforming appraisals of any type of real estate, other than single
family residences” is closely related to banking or managing or con
trolling banks.
Applicant states that certain real estate-related advisory
services, provided to State and local governments, have been previously
specified by the Board as being permissible for bank holding companies
as "providing financial advice to State and local governments, such
as with respect to the issuance of their securities.” The Board also
requests canments as to whether these proposed activities are closely
related to banking.
With respect to these activities and others that have been
previously determined to be closely related to banking, the Board requests
interested persons to comment on whether retention of the nonbanking
company would result in public benefits that outweigh possible adverse
effects.
DATE:
Comments must be re c e iv e d by August 1
,
1980.
ADDRESS: Comments, which should refer to Docket No. R-0310, may be
mailed to Theodore E. Allison, Secretary, Board of Governors of the
Federal Reserve System, 20th Street and Constitution Avenue, N.W.,
Washington, D.C. 20551, or delivered to Room B-2223 between 8:45 a.m.
and 5:15 p.m. Comments may be inspected in Room B-1122, except as
provided in section 261.6(a) of the Board's Rules Regarding Availability
of Information (12 C.F.R. § 261.6(a)).
FOR FURTHER INFORMATION CONTACT: Michael E. Bleier, Senior Counsel
(202-452-3721), or Michael L. Kadish, Attorney (202-452-3428), Legal
Division, Board of Governors of the Federal Reserve System.
SUPPLEMENTAL INFORMATION: The Board of Governors has received an appli
cation filed pursuant to section 4(c)(8) of the Bank Holding Company
Act (12 U.S.C. § 1843(c)(8)) and section 225.4(b)(2) of the Board's
Regulation Y (12 C.F.R. § 225.4(b)(2)) by First Chicago Corporation,
Chicago, Illinois, for prior approval to retain shares of its subsid
iary, Real Estate Research Corporation ("RERC"), Chicago, Illinois,
a company engaged in a wide variety of real estate-related advisory
and appraisal activities. Some of the activities that are the subject
of the application have not previously been determined by the Board
to be closely related to banking.
Section 225.4(a) of Regulation Y provides that a bank holding
company may file an application to engage in activities, other than
those determined to be permissible for bank holding companies, if it
is of the opinion that the proposed activity in the circumstances sur
rounding a particular case is closely related to banking or managing
or controlling banks. The regulation further provides that the Board
will publish in the Federal Register a notice of opportunity for hearing
regarding the proposed activity only if it believes that there is a
reasonable basis for the bank holding company's opinion.
Applicant acquired RERC in June 1970, and has been engaged
since that time— in the following activities:
(1) providing financial
advice to State and local governments; (2) providing portfolio invest
ment advice; (3) providing branch location, financial feasibility, and
1/ Section 4 of the Act provides, inter alia, that nonbanking activities
acquired between June 30, 1968, and December 31, 1970, by a company
which became a bank holding company as a result of the 1970 Amendments
may not be retained beyond December 31, 1980, without Board approval.
3-
specialized market studies Cor nonaffiliated banks; (4) providing general
economic information and advice, general economic statistical forecasting
services, and industry studies; (5) advising State and local governments
about methods available to finance real estate development projects;
(6) evaluating projected income to determine for State and local govern
ments whether debt resulting from proposed development projects can
be adequately serviced; and (7) performing appraisals of all types of
real estate, other than single-family residences. These activities
are performed from offices of RERC in Chicago, Illinois; Atlanta, Georgia;
Dallas and Houston, Texas; Miami, Florida; San Diego and San Francisco,
California; and the District of Columbia. The geographic area served
is the entire continental United States. RERC also engages in other
real estate advisory activities that are not subjects of this notice
because the Board has determined that there is no reasonable basis for
Applicant's opinion that the activities are closely related to banking.
Applicant states that activity (5), "advising State and local
governments about methods available to finance real estate development
projects," and activity (6), "evaluating projected income to determine
for State and local governments whether debt resulting from proposed
development projects cam be adequately serviced," are within the scope
of the activity previously determined by the Board to be permissible
for bank holding companies in section 225.4(a)(5)(v) of Regulation Y
(12 C.F.R. § 225.4(a)(5)(v)). Applicant cites as examples of these
activities, (a) analyzing the financial feasibility of converting obso
lete urban buildings to new uses, and (b) examining the impact of a
proposed freeway on land use, property values, tax receipts, and public
expenditures. While the administrative history of that provision of
Regulation Y indicates that the Board intended to restrict the scope
of the activity, the Board believes nevertheless that these proposed
activities may be encompassed within the language of the provision.
In addition, it appears that the provision of such services by a banking
organization may be consistent with factors considered by the Board
under its Regulation BB (12 C.F.R. § 228.7) in assessing a State member
bank's record of performance under the Community Reinvestment Act (12
U.S.C. § 2901 et seq.). Therefore, regardless of whether these activi
ties currently are specifically authorized, the Board believes it is
reasonable to secure comments on whether these activities should be
permissible for bank holding companies.
1
-4Under guidelines established by a federal circuit court,—
an activity may be found to be closely related to banking if it is
demonstrated (1) that banks generally have in fact provided the proposed
service; or (2) that banks generally provide services that are opera
tionally or functionally so similar to the proposed services as to equip
them particularly well to provide the proposed service; or (3) that
banks generally provide services that are so integrally related to th^,
proposed service as to require their provision in a specialized form.—
The Board has previously found the National Courier guidelines useful
in determining whether there is a reasonable basis for an applicant's
opinion £hat a proposed new nonbanking activity is closely related to
banking.—
With respect to the activity of performing appraisals of real
estate other than single-family residences (RERC's activity (7)), the
Board finds that the record of this application currently contains
little evidence, other than Applicant's unsubstantiated assertions,
that this activity meets the guidelines established by the Board and
the courts. There is evidence to indicate that banks perform real estate
appraisals for internal use, but this is not a basis upon which an
activity may be found to be closely related to banking; otherwise, any
administrative support service could be found to be closely related
to banking. Nevertheless, since the Board is inviting comment on other
aspects of the proposal, it appears that it would be desirable to also
secure comments as to whether this activity is "so closely related to
banking or managing or controlling banks as to be a proper incident
2/ National Courier Association v. Board of Governors of the Federal
Reserve System. 516 F.2d 1229 (D.C. Cir. 1975) (hereinafter referred”
to as "National Courier").
3/ These guidelines are cited, for example, in NCNB Corporation v.
Board of Governors of the Federal Reserve System# 599 F.2d 609 (4th
Cir. 1979); Association of Bank Travel Bureaus,""inc. v. Board of Governors
of the Federal Reserve System, 568 F.2d 549, 551 (7th Cir. 1978); Alabama"
Association of Insurance Agents v. Board of Governors of the Federal
Reserve System, 553 F.2d 224, 241 (5th Cir. 1976), rehearing denied
558 F.2d 729 (1977), cert, denied 435 U.S. 904 (1978).
£/ NCNB Corporation (Superior Insurance Company and Superior Claim
Service), 64 Federal Reserve Bulletin 506, 507 (197S); aff'd sub nom.
NCNB Corporation v. Board of Governors of the Federal Reserve System,
599 F.2d 609 (4th Cir. 1979).
'
-5 -
thereto." it is noted that appraisals accounted for a larger percentage
of RERC's sales in 1979 than any other single activity. Under the Board's
Regulation Y, the Board's decision to publish notice of a proposed new
activity does not obligate the Board to finally determine that the
activity is closely related to banking or that the activity is permis
sible for bank holding companies.
Interested persons may express their views on the question
of whether each of the above activities is closely related to banking
or managing or controlling banks. Comments concerning this question
should address the Mational Courier guidelines.
Some of RERC's activities proposed by First Chicago to be
continued beyond December 31, 1980, have been specified by the Board
in section 225.4(a) of Regulation Y as permissible for bank holding
companies, subject to Board approval of individual proposals in accord
ance with the procedures of section 225.4(b). These activities are:
(1) providing financial advice to State and local governments; (2) pro
viding portfolio investment advice; (3) providing branch location,
financial feasibility, and specialized market studies for nonaffiliated
banks; and (4) providing general economic information and advice, general
economic forecasting services, and industry studies. Interested persons
may also express their views on the question of whether the continued
performance by Applicant of these activities, as well as those activities
proposed for rulemaking discussed above, 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."
A request for a hearing on either question must be accompanied
by a statement of the reasons a written presentation would not suffice
in lieu of a hearing, identifying specifically any questions of fact
that are in dispute, summarizing the evidence that would be presented
at a hearing, and indicating how the party commenting would be aggrieved
by approval of the proposal.
The application may be inspected at the offices of the Board
of Governors or at the Federal Reserve Bank of Chicago.
Board of Governors of the Federal Reserve System, June 26,
1980.
(Signed)
Griffith L. Garwood
Griffith L. Garwood
Deputy Secretary of the Board
[SEAL]
@FedFRASER