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Federal R eserve Bank OF DALLAS R O B E R T D. M c T E E R , J R . DALLAS, TEXAS 75265-5906 PR ESID EN T AND CH IE F E X E C U T IV E O F F IC E R July 12, 1996 Notice 96-65 TO: The Chief Executive Officer of each m em ber bank and others concerned in the Eleventh Federal Reserve District SUBJECT Request for Public Comment on the Proposed Rescission of Regulation R (Relations with Dealers in Securities) and a Related Interpretation DETAILS The Board of Governors of the Federal Reserve System is requesting public comment on the proposed rescission of Regulation R (Relations with D ealers in Securi ties), which the Board believes is no longer necessary. In addition, the Board is proposing to am end its regulations to remove an interpretation of Section 32 of the Glass-Steagall Act, which the Board also believes is unnecessary. The Board must receive comments by August 2, 1996. Please address com ments to William W. Wiles, Secretary, Board of Governors of the Federal Reserve System, 20th Street and Constitution Avenue, N.W., Washington, D.C. 20551. All comments should refer to Docket No. R-0931. ATTACHMENT A copy of the Board’ notice as it appears on pages 34749-51, Vol. 61, No. s 129, of the Federal Register dated July 3, 1996, is attached. MORE INFORMATION For more information, please contact Julie Mills at (214) 922-6229. For additional copies of this Bank’ notice, please contact the Public Affairs D epartm ent at s (214) 922-5254. Sincerely yours, /$ . . F or additional copies, bankers and others are encouraged to use one of the following toll-free num bers in contacting the Federal Reserve Bank of Dallas: Dallas Office (800) 333 -4460; E l Paso Branch Intrastate (800) 592-1631, Interstate (800) 351-1012; H ouston Branch Intrastate (800) 392-4162, Interstate (800) 221-0363; San A ntonio Branch Intrastate (800) 292-5810. This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org) Federal Register / Vol. 61, No. 129 / Wednesday, July 3, 1996 / Proposed Rules inspected in room MP-500 between 9 a.m. and 5 p.m., except as provided in § 261.8 of the Board’s Rules Regarding Availability of Information, 12 CFR 261.8. FOR FURTHER INFORMATION CONTACT: Richard M. Ashton, Associate General Counsel (202/452-3750), or Thomas M. Corsi, Senior Attorney (202/452-3275), Legal Division. For the hearing impaired only, Telecommunications Device for the Deaf (TDD), Dorothea Thompson (202/452-3544). SUPPLEMENTARY INFORMATION: Section 303 o f the Riegle Community Development and Regulatory Improvement Act o f 1994 (CDRI Act) FEDERAL RESERVE SYSTEM 12 CFR Parts 218 and 250 [Regulation R; Docket No. R-0931] Relations With Dealers in Securities Under Section 32, Banking Act of 1933; Miscellaneous Interpretations Board of Governors of the Federal Reserve System. ACTION: Notice of proposed rulemaking. AGENCY: SUMMARY: The Board is proposing to amend its regulations to remove Regulation R concerning relations with dealers in securities under section 32 of the Banking Act of 1933, which the Board believes is no longer necessary. The Board also is proposing to amend its regulations to remove an interpretation of section 32 of the GlassSteagall Act, which the Board believes is no longer necessary. This interpretation explains the position of the Board regarding the application of the prohibitions of section 32 to bank holding companies. DATES: Comments must be received by August 2, 1996. ADDRESSES: Comments should refer to Docket No. R-0931 and may be mailed to William W. Wiles, Secretary, Board of Governors of the Federal Reserve System, Docket No. R-0931, 20th Street and Constitution Avenue, NW., Washington, DC 20551. Comments addressed to Mr. Wiles may also be delivered to the Board’s mail room between 8:45 a.m. and 5:15 p.m., and to the security control room outside of those hours. Both the mail room and control room are accessible from the courtyard entrance on 20th Street between Constitution Avenue and C Street, NW. Comments may be Section 303(a) of the CDRI Act (12 U.S.C. 4803(a)) requires the Board, as well as the other federal banking agencies, to review its regulations and written policies in order to streamline and modify these regulations and policies to improve efficiency, reduce unnecessary costs, and eliminate unwarranted constraints on credit availability. The Board has reviewed its interpretations of section 32 of the Glass-Steagall Act (12 U.S.C. 78) with this purpose in mind, and, as is explained in greater detail in the text that follows, proposes to amend these interpretations in a way designed to meet the goals of section 303(a). Substantive Provisions o f Regulation R The Board’s Regulation R (12 CFR Part 218) implements section 32 of the Glass-Steagall Act. Section 32 prohibits officer, director and employee interlocks between member banks and firms “primarily engaged” in underwriting and dealing in securities, and authorizes the Board to exempt from this prohibition, under limited circumstances, certain interlocks by regulation. Currently, Regulation R restates the statutory language of section 32, and sets forth the only exemption adopted by the Board since passage of the Glass-Steagall Act. The Board also has codified in the CFR 14 interpretations of the substantive provisions of section 32 and the regulation.1The Board also has issued other interpretations of section 32 that are contained in the Federal Reserve Regulatory Service (FRRS). The exemption in Regulation R, adopted by the Board in 1969, permits interlocks between member banks and securities firms whose securities underwriting and dealing activities are limited to underwriting and dealing in only securities that a national bank '1 2 CFR 218.101-218.114: 34749 would be authorized to underwrite and deal in. The adoption of the express exemption was apparently based on the assumption that the literal language of the section 32 prohibition could at least arguably cover bank-eligible securities activities. Subsequently, in orders approving applications under the Bank Holding Company Act (12 U.S.C. 1841 et seq.), the Board interpreted the prohibitions of section 20 of the Glass-Steagall Act, which prohibits a member hank from being affiliated with a firm engaged principally in underwriting and dealing in securities, as not applying on their face to underwriting and dealing in securities that may be underwritten and dealt in directly by a state member bank. In these decisions, the Board also expressed the view that section 32 similarly did not cover an interlock between a member bank and a firm that was not engaged in securities activities covered by section 20.2 Accordingly, in light of the Board’s more recent view of the scope of section 32, the express exemption from the provisions of section 32 for bank-eligible securities activities is no longer necessary.3 Moreover, the Board has never adopted any other exemption to the interlocks provision and historically, requests that the Board create new exemptions have been infrequent and have been uniformly denied.4 Since the exemption in Regulation R is no longer necessary, and it is not necessary to have a substantive regulation solely to restate a statutory provision, the Board is proposing to rescind Regulation R. Bank Holding Company Interpretation o f Section 32 of the Glass-Steagall Act With one exception, the 14 interpretations of section 32 now contained in the CFR, would be retained and transferred to 12 CFR Part 250, 2T his interp retation has been u p h e ld by the courts. Securities In d u stry A ssocia tion v. Board o f G overnors o f th e Federal R eserve System , 839 F.2d 47, 62 (2d Cir. 1988), cert, d enied , 486 U.S. 1059 (1988). . 3 T he Board is proposing to a do pt a new interpretation of section 32 to clarify this point. 4 A footnote to Regulation R that dates to 1936 m akes it clear tha t a broker w ho is engaged solely in executing orders for the p urc h a se a n d sale o f securities on beh alf of others in the open market is not engaged in the bu siness referred to in section 32. T h e Board has since a u th orized b an k h olding com panies to engage in this activity directly, reiterating th a t securities brokerage is n ot a proscribed activity u n d e r either sections 32 or 20 of the Glass-Steagall Act. B ankA m erica Corporation, 69 Federal Reserve B ulletin 105 (1983). The courts u p h e ld the B oard’s interpretation. Securities In d u stry A ssn. v. Board o f Governors, 468 U.S. 207 (1984). The rem oval of R egulation R does not affect this interpretation. 34750 Federal Register / Vol. 61, No. 129 / Wednesday, July 3, 1996 / Proposed Rules continue to apply to member banks. which contains miscellaneous Board Accordingly, the directors, officers and interpretations. By their terms, the prohibitions of employees of these banks, none of section 32 apply only to member banks. whom may be interlocked with a In 1969, the Board issued an securities firm, could serve as a check against the possibilities of abuse that interpretation that extended the section 32 is intended to prohibit. In prohibitions of section 32 to a bank addition, the Board believes that by holding company where the principal activity of the bank holding company is rescinding this interpretation, it would be granting some measure of regulatory the ownership and control of member banks.5 The Board is now seeking public relief to bank holding companies by comment on rescinding this giving them access to a larger pool of persons from which to choose their interpretation. The Board based its 1969 officers, directors, and employees.8 interpretation not so much on the literal Other Interpretations o f Section 32 language of section 32, but on its belief The Board also seeks comment on that where the ownership and control of whether any of the other interpretations member banks is the principal activity of section 32 previously adopted by the of a bank holding company, the same possibilities of abuse that section 32 was Board could be amended. designed to prevent would be present in Regulatory Flexibility Act A nalysis the case of a director of the holding Pursuant to section 605(b) of the company as in the case of the member Regulatory Flexibility Act (Pub. L. 9 5bank.6 The Board believed that giving 354, 5 U.S.C. 601 et seq.), the Board of cognizance to the separate corporate Governors of the Federal Reserve entities in such a situation would System certifies that adoption of this partially frustrate Congressional proposed rule will not have a significant purpose in enacting section 32. economic impact on a substantial The Board now believes that it could number of small entities that would be rescind this interpretation and give subject to the regulation. some measure of regulatory burden This amendment will remove a relief to bank holding companies in a regulation and an interpretation that the manner consistent with section 32, and Board believes are no longer necessary. w ithout frustrating the Congressional The amendment does not impose more purpose underlying the section. The burdensome requirements on bank Board is not barred by the literal terms holding companies than are currently of the Glass-Steagall Act from applicable. rescinding the interpretation. As noted above, section 32 specifically restricts Paperwork Reduction Act only those interlocks involving member In accordance with the Paperwork banks. While the bank holding company Reduction Act of 1995 (44 U.S.C. 3506; structure was not in widespread use 5 CFR 1320 Appendix A.l), the Board w hen section 32 was adopted, Congress reviewed the proposed rule under the has amended section 32 since the authority delegated to the Board by the section was adopted and since bank Office of Management and Budget. No holding companies have become collections of information pursuant to commonplace, but never has extended the Paperwork Reduction Act are the prohibitions in the section to bank contained in the proposed rule. holding companies. Notably, in 1987, List of Subjects Congress extended the prohibitions of section 32 to cover interlocks involving 12 CFR Part 218 nonmember banks and thrift institutions Antitrust, Federal Reserve System, but not interlocks involving bank Securities. holding companies.7 The potential that removal of the 12 CFR Part 250 interpretation could frustrate Federal Reserve System. Congressional purpose in enacting For the reasons set forth in the section 32 is mitigated by the fact that preamble and under the authority of 12 the prohibitions of section 32 would U.S.C. 248, the Board proposes to amend Chapter II of the Code of Federal 5 12 CFR 218.114. Regulations as set forth below: 6 As n oted in th e B oard’s interpretation, section 32 is dire c te d to the probability or likelihood th a t a b a n k d irector interested in the underw riting b u sin ess m ay use his or her influence in th e bank to involve it or its custom ers in securities s old by his pr h e r u n d e rw ritin g house. 7 T he provisions extending the p ro hibitions of sectio n 32 to n onm em b er bank s an d thrifts expired in 1988. 8 Should the Board d eterm ine to re scin d this interpretation, this action w o u ld not affect other Board decisions or determ inations tha t restrict interlocks to e n su re com pliance w ith section 20 of the Glass-Steagall A ct (12 U.S.C. 377). See, e.g., M ellon B a n k Corporation, 79 Federal Reserve B ulletin 626 (1993). PART 218—[AMENDED] §§218.101 through 218.113 [Redesignated as §§ 250.400 through 250.412] 1. Sections 218.101 through 218.113 are redesignated as set forth in the following table: Old Section 218.101 218.102 218.103 218.104 218.105 218.106 218.107 218.108 218.109 218.110 218.111 218.112 218.113 .......................................... .......................................... .......................................... .......................................... .......................................... .......................................... .......................................... .......................................... .......................................... .......................................... .......................................... .......................................... .......................................... New section 250.400 250.401 250.402 250.403 250.404 250.405 250.406 250.407 250.408 250.409 250.410 250.411 250.412 PART 218—[REMOVED] 2. Part 218 is removed. PART 250— MISCELLANEOUS INTERPRETATIONS 1. The authority citation for part 250 is revised to read as follows: Authority: 12 U.S.C. 78, 248(i) and 371c(e). 2. A new center heading is added immediately preceding newly designated § 250.400 to read as follows: Interpretations o f Section 32 o f the Glass-Steagall Act 3. Section 250.413 is added to read as follows: §250.413 “Bank-eligible” securities activities. Section 32 of the Glass-Steagall Act (12 U.S.C. 78) prohibits any officer, director, or employee of any corporation or unincorporated association, any partner or employee of any partnership, and any individual, primarily engaged in the issue, flotation, underwriting, public sale, or distribution, at wholesale or retail, or through syndicate participation, of stocks, bonds, or other similar securities, from serving at the same time as an officer, director, or employee of any member bank of the Federal Reserve System. The Board is of the opinion that to the extent that a company, other entity or person is engaged in securities activities that are expressly authorized for a state member bank under section 16 of the GlassSteagall Act (12 U.S.C. 24(7), 335), the company, other entity or individual is not engaged in the types of activities described in section 32. In addition, a securities broker who is engaged solely in executing orders for the purchase and Federal Register / Vol. 61, No. 129 / Wednesday, July 3, 1996 / Proposed Rules sale of securities on behalf of others in the open market is not engaged in the business referred to in section 32. By order of the Board of G overnors of the Federal Reserve System . Date: June 26,1996. William W. Wiles, Secretary of the Board. [FR Doc. 96-16841 F iled 7 -0 2 -9 6 ; 8:45am] Billing C o d e 6 2 1 0 - 0 1 - P 34751
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