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F ederal Reserve

bank

DALLAS, TEXAS

of

Dallas

75222
C i r c u l a r Wo. 7 3 - 2 5 5
O c to b e r 5 , 1973

REVISED PROPOSED AMENDMENT TO REGULATION Y
(To Clarify Deposit-Taking Activities
Permitted to Trust Company Subsidiaries)

To All Banks, Bank Holding Companies, and Others
Concerned in the Eleventh Federal Reserve District:

On October 2, 1973, the Board of Governors of the Federal
Reserve System issued a modified proposal to amend Section 225.i+(a)
(U) of Regulation Y. The revised proposed amendment concerns the
deposit-taking activities that are properly incidental to trust
company activities previously determined to be permissible activi­
ties for bank holding companies.
The Board initially issued a
proposal concerning the above subject which was transmitted to you
in our Circular No. 73-198? dated August 7, 1973.
Interested parties are invited to submit relevant data,
views, or arguments in writing to the Secretary, Board of Governors
of the Federal Reserve System, Washington, D. C. 20551, to be
received not later than November 2, 1973.
The press release and the revised proposed amendment are
printed on the following pages.
Y ours v e r y t r u l y ,
P.

E. C o ld w e ll,
P re sid e n t

Enclosure

This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org)

j,
^

FEDERAL
press

RESERVE

release

For im m ediate r e l e a s e

O ctob er 3 , 1973

The Board o f G overnors o f th e F e d e r a l Preserve System to d a y p rop osed
a r e v i s e d amendment t o i t s R e g u la t io n Y - - r e g u l a t i n g bank h o l d i n g com panies - ­
r e g a r d in g t r u s t company s u b s i d i a r i e s .
As r e v i s e d , th e p rop osed amendment would b road en th e s c o p e o f
p e r m i s s i b l e d e p o s i t - t a k i n g by t r u s t company s u b s i d i a r i e s beyond what was
f i r s t s u g g e s t e d , and would narrow t h e s c o p e o f i n c i d e n t a l le n d in g a c t i v i t e s
p e r m i s s i b l e f o r such c o m p a n ie s.
The r e v i s i o n s p rop osed to d a y r e f l e c t th e B o a r d 's c o n s i d e r a t i o n o f
comment r e c e i v e d on p r o p o s a ls t o amend R e g u la t io n Y, p u b lis h e d J u ly 3 , t o
c l a r i f y th e d e p o s i t - t a k i n g and l e n d in g and in v e s t m e n t a c t i v i t i e s o f t r u s t
company s u b s i d i a r i e s o f bank h o l d i n g c o m p a n ie s.
The r e v i s e d p r o p o s a l w ou ld:
- - Add t o t h e d e p o s i t - t a k i n g p e r m it te d t o t r u s t com panies d e p o s i t s
a r i s i n g from c u s t o d i a l and managing a g e n t a c c o u n t s and o t h e r s p e c i f i e d
a gen cy r e l a t i o n s h i p s .

( D e p o s i t - t a k i n g , a s o r i g i n a l l y p r o p o s e d , w ould have

b een l i m i t e d t o d e p o s i t s a r i s i n g from t r u s t funds n o t c u r r e n t l y i n v e s t e d ,
and t h o s e r e c e i v e d under t r u s t in s t r u m e n t s , o r d e p o s i t s r e c e i v e d f o r s p e c i a l
u s e on b e h a l f o f an i s s u e r o f s e c u r i t i e s or an i n v e s t o r i n s e c u r i t i e s . )
- - P r o h i b i t t r u s t company s u b s i d i a r i e s from making lo a n s or
in v e s t m e n t s e x c e p t t h e s a l e o f f e d e r a l fu n d s , th e making o f c a l l lo a n s t o
s e c u r i t i e s d e a l e r s or t h e p u r c h a se o f money m arket in s tr u m e n ts such as
c e r t i f i c a t e s o f d e p o s i t , com m ercial p a p e r , governm ent o r m u n ic ip a l s e c u r i t i e s

- 2 and b an k ers a c c e p t a n c e s .
m ercia l

(The o r i g i n a l p r o p o s a l would have p e r m it te d com­

l e n d in g by a t r u s t company under

some c i r c u m s t a n c e s .)

Such lo a n s and i n v e s t m e n t s mayn o t b e u sed as a method o f

c h a n n e lin g

funds t o nonbanking a f f i l i a t e s o f th e t r u s t company, under t h e new p r o p o s a l .
Comment on th e r e v i s e d p r o p o s a l w i l l be r e c e i v e d by th e S e c r e t a r y
o f th e Board through

November 2 , 19 7 3 .

A copy o f th e r e v i s e d p r o p o s a l i s a t t a c h e d .

- 0 -

FEDERAL RESERVE SYSTEM
[12 CFR PART 225]
BANK HOLDING COMPANIES
Nonbanking A c t i v i t i e s and I n t e r e s t s

By n o t i c e o f p ro p o sed r u l e making p u b lis h e d i n t h e F e d e r a l
R e g i s t e r on J u l y 1 3 , 1973 (38 F e d e r a l R e g i s t e r 1 8 6 9 1 ) , t h e Board o f
G overnors p ro p o sed t o amend s e c t i o n 2 2 5 . 4 ( a ) ( 4 ) o f R e g u la t io n Y to
c l a r i f y t h e b o u n d a r ie s upon d e p o s i t - t a k i n g a c t i v i t i e s t h a t a r e p r o p e r ly
i n c i d e n t a l t o t r u s t company a c t i v i t i e s w h ich t h e Board h a s d e ter m in ed
t o be s o c l o s e l y r e l a t e d t o b an k in g or managing or c o n t r o l l i n g banks
as t o be a p rop er i n c i d e n t t h e r e t o , and t o p r o v id e t h a t t h e k in d s o f
a c t i v i t i e s a u t h o r iz e d under s e c t i o n 2 2 5 . 4 ( a ) ( 4 )

i n c l u d e t h o s e perform ed

n o t o n ly by t r u s t company s u b s i d i a r i e s t h a t a r e S t a t e - c h a r t e r e d , bu t
a l s o by any su ch s u b s i d i a r i e s t h a t may o p e r a t e as l i m i t e d p u r p o se t r u s t
com panies under n a t i o n a l bank c h a r t e r s and t h a t do n o t b o th a c c e p t
demand d e p o s i t s and make com m ercial l o a n s .
F o llo w in g c o n s i d e r a t i o n o f t h e comments r e c e i v e d , t h e Board
has d e te r m in e d t o m o d ify i t s p r o p o s a l .

P u r su a n t t o i t s a u t h o r i t y under

s e c t i o n 4 ( c ) ( 8 ) o f t h e Bank H o ld in g Company A ct (12 U .S .C . 1 8 4 3 ( c ) ( 8 ) ) ,
t h e Board p r o p o s e s t o amend s e c t i o n 2 2 5 . 4 ( a ) ( 4 )

t o a u t h o r i z e nonbanking

t r u s t company s u b s i d i a r i e s o f bank h o l d i n g com p anies t o a c c e p t d e p o s i t s
t h a t a r e g e n e r a te d from t r u s t fu n d s n o t c u r r e n t l y i n v e s t e d and d e p o s i t s
r e p r e s e n t i n g fu n d s r e c e i v e d f o r a s p e c i a l u s e i n t h e c a p a c i t y o f a
m anaging a g e n t or c u s t o d ia n f o r an owner o f , o r i n v e s t o r i n , r e a l p r o p e r t y ,

-2 -

s e c u r i t i e s , o r o t h e r p e r s o n a l p r o p e r t y , o r a s a g e n t f o r an i s s u e r o f ,
or b r o k e r or d e a l e r i n , s e c u r i t i e s , p r o v id e d t h a t su ch a g e n c y or c u s t o d ia n
a c c o u n t s a r e n o t em ployed by or f o r t h e a c c o u n t o f a cu stom er i n th e
manner o f a g e n e r a l p u r p o se c h e c k in g a c c o u n t and do n o t b e a r i n t e r e s t .
A d d i t i o n a l l y , t h e amendment now p r o p o se d would p r o h i b i t t r u s t company
s u b s i d i a r i e s from making l o a n s o r in v e s t m e n t s e x c e p t t h e s a l e o f f e d e r a l
f u n d s , t h e making o f c a l l l o a n s t o s e c u r i t i e s d e a l e r s o r t h e p u r c h a s e
o f money m arket in s tr u m e n ts su ch a s c e r t i f i c a t e s o f d e p o s i t , com m ercial
p a p e r , governm ent or m u n ic ip a l s e c u r i t i e s , and b a n k er s a c c e p t a n c e s .
Such a u t h o r iz e d lo a n s and i n v e s t m e n t s , h ow ever, may n o t b e u sed a s
a method o f c h a n n e lin g fu n d s t o nonbanking a f f i l i a t e s o f t h e t r u s t
company.

The r e v i s e d p r o p o s a l a l s o r e t a i n s a f e a t u r e o f t h e B o a r d 's

o r i g i n a l p r o p o s a l p e r m i t t i n g t h e a c q u i s i t i o n by bank h o l d i n g com panies
under s e c t i o n 4 ( c ) ( 8 ) o f t h e Bank H o ld in g Company A ct o f nonbanking
t r u s t com panies h a v in g n a t i o n a l bank c h a r t e r s .

I t i s r e c o g n iz e d t h a t

h o l d i n g com panies may, i n t h e i r home S t a t e , c h o o s e t o a p p ly f o r l i m i t e d
p u r p o se t r u s t com panies under s e c t i o n 3 o f t h e A c t i n o r d e r t o o b t a i n
b ro a d er le n d in g p r i v i l e g e s .
The r e v i s e d p r o p o s a l would broaden t h e s c o p e o f p e r m i s s i b l e
d e p o s i t - t a k i n g by t r u s t company s u b s i d i a r i e s beyond t h e p e r im e t e r s
o f t h e B o a r d 's o r i g i n a l p r o p o s a l , b u t narrow t h e s c o p e o f p e r m i s s i b l e ,
i n c i d e n t a l l e n d in g a c t i v i t i e s .

In s o d o i n g , i t s e e k s t o b a la n c e t h e

d e s i r a b l e o b j e c t i v e s o f f a c i l i t a t i n g t h e a c h ie v e m e n t o f g r e a t e r
e f f i c i e n c i e s i n t h e co n d u c t o f t r u s t o p e r a t i o n s and p r o v id in g a d d i t i o n a l

-3-

i n c e n t i v e s f o r i n c r e a s e d c o m p e t i t i o n f o r t r u s t b u s i n e s s on a n a t io n w id e
s c a l e on t h e one hand an d , on th e o t h e r , t o remove t h e p o s s i b i l i t i e s
o f i n d i r e c t e v a s i o n o f s e c t i o n 3 (d ) o f t h e Bank H o ld in g Company A ct
(12 U .S .C . 1 8 4 2 ( d ) )

through t h e a u g m e n ta tio n o f t h e com m ercial le n d in g

c a p a b i l i t i e s o f bank h o l d i n g com panies i n S t a t e s o t h e r than t h e S t a t e
i n w h ich t h e i r p r i n c i p a l b an k in g s u b s i d i a r i e s o p e r a t e .

The r e v i s e d

p r o p o s a l draws a r u l e t h a t , b a se d on t h e comments r e c e i v e d , t h e Board
b e l i e v e s would e n a b le i n c i d e n t a l d e p o s i t - t a k i n g c o n s i s t e n t w i t h t h e
f u l l ra n g e o f c o n v e n t i o n a l f u n c t i o n s or a c t i v i t i e s o f a t r u s t company
w it h o u t r i s k o f s i g n i f i c a n t d is p la c e m e n t o f com m ercial bank c h e c k in g
account s e r v ic e s .
The p ro p o sed amended subparagraph ( a ) ( 4 ) o f § 2 2 5 .4 o f
R e g u l a t io n Y w ould read a s f o l l o w s :

§ 2 2 5 .4

Nonbanking a c t i v i t i e s .
(a )

A c t i v i t i e s c l o s e l y r e l a t e d t o b an k in g or managing or

c o n t r o llin g banks.

***

The f o l l o w i n g a c t i v i t i e s h ave b e e n d e ter m in ed

by t h e Board t o be s o c l o s e l y r e l a t e d t o b a n k in g or managing o r c o n t r o l l i n g
banks a s t o be a p r o p e r i n c i d e n t t h e r e t o :
*

(4 )

*

*

*

*

p e r fo r m in g o r c a r r y i n g on any on e o r more o f t h e f u n c t i o n s

or a c t i v i t i e s t h a t may be perform ed o r c a r r i e d on by a t r u s t company
( i n c l u d i n g a c t i v i t i e s o f a f i d u c i a r y , a g e n c y , or c u s t o d i a n n a t u r e ) ,
i n t h e manner a u t h o r iz e d by f e d e r a l or S t a t e la w , s o lo n g a s t h e

-4-

i n s t i t u t i o n d o e s n o t make l o a n s o r in v e s t m e n t s or a c c e p t d e p o s i t s o t h e r
th an ( i ) d e p o s i t s t h a t a r e g e n e r a te d from t r u s t fu n d s n o t c u r r e n t l y
i n v e s t e d and a r e p r o p e r ly s e c u r e d t o t h e e x t e n t r e q u ir e d by la w , or
(ii)

d e p o s i t s r e p r e s e n t i n g fu n d s r e c e i v e d f o r a s p e c i a l u s e i n t h e

c a p a c i t y o f managing a g e n t o r c u s t o d ia n f o r an owner o f , or i n v e s t o r
i n , r e a l p r o p e r t y , s e c u r i t i e s , o r o t h e r p e r s o n a l p r o p e r t y , or f o r su ch
owner or i n v e s t o r a s a g e n t o r c u sto d u a n o f fu n d s h e l d f o r in v e s t m e n t
o r escr o w a g e n t , or f o r an i s s u e r o f , o r b r o k e r or d e a l e r i n s e c u r i t i e s ,
i n a c a p a c i t y su ch a s p a y in g a g e n t , d iv id e n d d i s b u r s i n g a g e n t , o r s e c u r i t i e s
c l e a r i n g a g e n t , and n o t em ployed by o r f o r t h e a c c o u n t o f th e custom er
i n t h e manner o f a g e n e r a l p u r p o se c h e c k in g a c c o u n t o r b e a r in g i n t e r e s t ,
or,

(iii)

s a l e o f f e d e r a l f u n d s , making o f c a l l l o a n s t o s e c u r i t i e s

d e a l e r s or p u r c h a se o f money m arket in s tr u m e n ts su c h a s c e r t i f i c a t e s
o f d e p o s i t , com m ercial p a p e r , governm ent o r m u n ic ip a l s e c u r i t i e s , and
b an k ers a c c e p t a n c e s (s u c h a u t h o r iz e d l o a n s and i n v e s t m e n t s , how ever,
may n o t be u se d a s a method o f c h a n n e lin g fu n d s t o nonbanking a f f i l i a t e s
o f t h e t r u s t company).

. . . "

To a i d i n t h e c o n s i d e r a t i o n o f t h i s m a tte r by t h e B oard,
i n t e r e s t e d p e r s o n s a r e i n v i t e d t o su b m it r e l e v a n t d a t a , v i e w s , or
argum ent.

Any su ch m a t e r i a l s h o u ld be s u b m itte d i n w r i t i n g t o t h e

S e c r e t a r y , Board o f G overnors o f t h e F e d e r a l R e s e r v e S y stem , W ash in gton ,
D. C. 2 0 5 5 1 , t o b e r e c e i v e d n o t l a t e r th an November 2 , 19 7 3 .
(S ig n e d ) C h e s t e r B. F e ld b e r g

Chester B. Feldberg
Secretary of the Board
[SEAL]