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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]