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federal reserve





Circular No. 82-53
May 5, 1982

Bank Holding Companies and Change in Bank Control Act
Request for Public Comment Relating to Nonbanking Activities

The Board of Governors of the Federal Reserve System is
requesting public comment on the permissibility of certain securities
brokerage and related activities proposed in an application filed by
BankAmerica Corporation to acquire The Charles Schwab Corporation. The
Board has not previously determined that these activities are generally
permissible for bank holding companies and is not proposing to make such
a determination at this time.
quisition are to:




in the proposed ac­


Engage in certain securities brokerage activities;


Make margin loans to customers; and


Perform services related to these activities including
paying interest on net free balances of their customers,
providing securities custodial services, investing
net free balances of customers in an unaffiliated money
market fund and offering customer-directed Individual
Retirement Accounts (IRAs) under an arrangement with
an unaffiliated savings and loan association.

The Board asked specifically for comment regarding whether
engaging in securities brokerage activities proposed in the application
would violate Federal law separating banking and commerce, whether this
activity and making margin loans to customers are closely related to
banking under the terms of the Bank Holding Company Act, and whether the
services proposed are permissible under the Bank Holding Company Act as
being incidental to the proposed securities brokerage.

Banks and others are encouraged to use the following incoming W ATS 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
o v t p n c in n rp fp rrp rl t o a h n v fi.

This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (




Printed on the following pages is a copy of the Board's notice
of the application as published in the Federal Register. Any views or
comments concerning the subject of nonbanking activities should be
submitted in writing and received by Mr. William W. Wiles, Secretary,
Board of Governors of the Federal Reserve System, Washington, D.C. 20551
no later than May 29, 1982.
Questions in regard to the contents of this circular should be
directed to Robert D. Hankins of our Holding Company Supervision
Department, Ext. 6120.


Additional copies of this circular will be furnished upon
to the Department ofCommunications,
Financial and Community
ofthis Bank, Ext. 6289.
Sincerely yours,

William H.
First Vice



Federal Register / Vol. 47, No. 72 / W ednesday, April 14, 1982 / Notices

BankAmerica Corp.; Proposal To
Engage in Securities Brokerage and
Extend Margin Credit
BankAmerica Corporation, San
Francisco, California, has applied,
pursuant to section 4(c)(8) of the Bank
Holding Company Act of 1956, as
amended (12 U.S.C. 1843(c)(8)) and
§ 225.4 (a) and (b)(1) of the Board's
Regulation Y (12 CFR 225.4 (a), (b)(1)),
for permission to directly acquire voting
shares of The Charles Schwab
Corporation, San Francisco, California
and, thereby indirectly acquire Charles
Schwab & Company, Inc., San Francisco,
California (together “Schwab”).
Applicant would engage in securities
brokerage consisting principally of
buying and selling securities—
principally corporate debt and equity
securities and options—solely upon the
order and for the account of customers.
Its business would be retail-oriented
and would be characterized as
"discount brokerage.” Applicant would
not engage in dealing, market making or
underwriting. It would give no
investment advice, would not
recommend the purchase or sale of
specific securities and would not offer to
buy or sell specific securities. Also,
Applicant would engage in the business
of extending margin in conformity with
the Board’s Regulation T, 12 CFR 220. By
this activity, Applicant’s brokerage
customers would furnish a specified
portion of the purchase price of
securities and Applicant would furnish
the balance and charge interest on that
amount until the purchaser either sells
the securities or otherwise takes them
up. Finally, Applicant would offer
certain specified services to its
securities customers. First, Applicant
would pay interest on net free balances
in the account of its securities
customers. Net free balances are funds
in the account of a customer of a
broker/dealer and arise in instances

Federal Register / Vol. 47, No. 72 / W ednesday, April 14, 1982 / Notices
where interest or dividends have been
credited to the customer's account or
where stock has been sold on behalf of a
customer and the proceeds are placed in
the customer’s account pending further
disposition of the funds. Payment of
interest on such balances by Applicant
would be subject to the rules and
regulations of the Securities Exchange
Commission. Second, applicant would
provide brokerage customers security
custodial services, including safe
keeping and accounting for securities.
Third, Applicant would maintain an
arrangement with Cash Equivalent
Fund, Inc., a money market fund
sponsored by Kemper Financial
Services, Inc., that would permit
borkerage customers to invest
temporarily free balances in the fund.
Applicant would receive no
remuneration from its customers, but
would receive a service fee from the
fund for its role as agent in arranging the
purchase of the fund shares for the
brokerage customers’ account. Last,
Applicant would offer its brokerage
customers access to a self-directed IRA
accounts under an arrangement with
First Nationwide Savings, an
unaffiliated savings and loan
association, as trustee. Pursuant to this
arrangement Applicant’s brokerage
customers would personally manage
investments in their own Individual
Retirement Account, consisting of
stocks, bonds, government securities
and covered options. Applicant states
that these proposed services are
incidental to the proposed brokerage
These activities would be conducted
from offices located in: Albuquerque,
New Mexico; Atlanta, Georgia; Austin,
Texas; Baltimore, Maryland; Boston,
Massachusetts; Century City, California;
Chicago, Illinois; Cincinnati, Ohio;
Cleveland, Ohio; Dallas, Texas; Denver,
Colorado; Detroit, Michigan; Fort
Lauderdale, Florida; Fort Worth, Texas;
Honolulu, Hawaii; Houston, Texas;
Indianapolis, Indiana; Irvine, California;
Kansas City, Missouri; Los Angeles,
California; Memphis, Tennessee;
Midland, Texas; Millbum, New Jersey;
Minneapolis, Minnesota; Nashville,
Tennessee; Newport Beach, California;
New Orleans, Louisiana; New York,
New York; Oklahoma City, Oklahoma;
Philadelphia, Pennsylvania; Phoenix,
Arizona; Pittsburgh, Pennsylvania;
Portland, Oregon; Sacramento,
California; St. Louis, Missouri; St.
Petersburg, Florida; Salt Lake City, Utah;
San Antonio, Texas; San Diego,
California; San Francisco, California;
Santa Barbara, California; Seattle,
Washington; Sun City, Arizona;

Sunnyvale, California; Tulsa, Oklahoma;
Virginia Beach, Virginia; and
Washington, D.C. The geographic area
to be served by each of these offices
would be all fifty (50) States and the
District of Columbia.
Section 4(c)(8) of the Bank Holding
Company Act provides that a bank
holding company may, with Board
approval, engage in any activity "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.” 12 U.S.C. 1843(c)(8).
The proposed activities have not been
specified by the Board in § 225.4(a) of
Regulation Y as permissible for bank
holding companies. Applicant believes,
however, that the proposed activities
are closely related to banking and a
proper incident thereto, and this opinion
in part is based upon the following facts.
As to the proposed brokerage services,
banks in fact have traditionally
performed brokerage services by
purchasing and selling securities for the
account of customers and this practice is
authorized by statute. See 12 U.S.C.
section 377. Also, by order dated July 28,
1981, the Board aproved the application
by a bank holding company to act as a
securities broker under certain
circumstances. See JCT Trust Company,
Ltd., 67 Federal Reserve Bulletin 635
(1981). As to the proposed activity of
extending margin credit pursuant to
Regulation T, Applicant states that
banks have historically performed a
similar function in extending margin
credit pursuant to Regulation U, 12 CFR
221 and, further, such activity is similar
to commercial lending activities
normally performed by banks.
Interested persons may express their
views on whether the proposed
activities of securities brokerage and
margin lending are "so closely related to
banking or managing or controlling
banks as to be a proper incident
thereto.” In addition, interested persons
also may express their views on certain
issues related to the application—
particularly, whether die proposed
activities are permissible under federal
statutes (i.e. the Glass-Steagall Act, 12
U.S.C. 24, 78, 377 and 378(a)) designed to
separate commercial from invetment
banking and whether the incidental
services described above are necessary
to the conduct of the proposed
brokerage activities or are otherwise
“closely related” to banking within the
meaning of section 4(c)(8) of the Bank
Holding Company Act. Finally,
interested persons may also express
their views on the question whether


consummation of the proposal 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.” Any
request for a hearing on these questions
must be accompanied by a statement of
the reasons why 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 San
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 May 29,1982.
Board of Governors of the Federal Reserve
System, April 12,1982.

James McAfee,
Associate Secretary ofthe Board.
[FR Doc. 82-10367 Filed 4-13-8% 9:40 am)