Full text of Federal Reserve Bank of New York Circulars : 10038. Conditions on Acquisition of Thrift Institutions by Bank Holding Companies

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FEDERAL RESERVE B A «
OF MEW YORK

[

Circular No. 1 0 ,0 3 8 1
May 23, 1986

CONDITIONS ON ACQ U ISITIO N OF
T H R IF T IN STITU TIO N S B Y BANK HOLDING COM PANIES
Comment Requested by June 27 on Modifying the Conditions

To All Depository Institutions, and Others Concerned,
in the Second Federal Reserve District:

Following is the text of a statement issued by the Board of Governors of the Federal Reserve
System:
The Federal Reserve Board has requested public comment on whether conditions it imposed on the
acquisition of thrift institutions by bank holding companies should be modified. Comment should be
received by the Board no later than June 27, 1986.
Since 1982, the Board has approved several applications by bank holding companies to acquire
troubled or failed thrift institutions. In approving those acquisitions, and after significant public com­
ment regarding the public benefits o f the acquisitions, the Board established a number of conditions
designed to assure that the thrifts continued to be operated as separate and independent thrift institutions.
The conditions also limit transactions between the acquired thrifts and other holding company affiliates.
The Board has recently received requests for relief from these limitations to permit thrifts acquired
by bank holding companies to jointly market and sell products and services with other bank holding
company affiliates, cross-advertise the services and products o f other holding company affiliates, and
conduct certain limited transactions with other holding company affiliates. In light of the significant
public participation that surrounded the original development o f these restrictions, the Board believes
that it is appropriate to seek public comment regarding whether the conditions have been effective in
accomplishing their intended purposes and continue to be appropriate in light o f recent developments in
the thrift and banking industries, or whether the conditions should be modified.

Enclosed — for thrift institutions and bank holding companies in this District — is a copy of the
Board’s official notice in this matter. It will be published shortly in the Federal Register, in addition,
copies will be furnished upon request directed to our Circulars Division (Tel. No. 212-791-5216).
Comments on the proposal should be submitted by June 27, 1986 and may be sent to our Domestic
Banking Applications Department.
E.

G e r a l d C o r r ig a n ,

President.

FEDERAL RESERVE SYSTEM
R egulation Y
(12 CcF.R, F a r t 225)
( D o c k e t NOo R = 0 5 7 2 )
C o n d i t i o n s Imposed on A c q u i s i t i o n o f T h r i f t
I n s t i t u t i o n s by Bank H o l d i n g Companies

AGENCY°

B o ar d o f G o v e r n o r s o f t h e F e d e r a l R e s e r v e S y st em *

ACTIONo

S o licita tio n

SUMMARYt

o f p u b l i c comments,,

The F e d e r a l

whether

the

conditions

Bo ar d
it

R e s e r v e Board

should

modify

Is

and

so licitin g

grant

im p o se s on t h e a c q u i s i t i o n

by bank h o l d i n g

companies

under

the

relie f

of

Bank

comments
from

th rift

the

in stitu tio n s

Holding

Company A c t

and t h e G a r n - S t Germain D e p o s i t o r y I n s t i t u t i o n s

Act o f

perm it

bank

m arketing

sales

op eration s

holding

a ffilia te s,

offered

All

comments

June 27,

19 86„

ADDRESS i

A ll

NOo R - 0 5 7 2 ,

Do Co

through
by

conduct

th rift

its

should

th rift

comments,

be

mailed

of Governors

of

the

20551,
20th

or

Street,

to

N*Wo,

the

1 98 2

to

and

other

the

and

serv ices

engage

in

and o t h e r a f f i l i a t e s , ,

W illiam

Federal

delivered

a ffilia te s,

should

to

and

su b sid iaries

receiv ed

which

be

jo in t

su b sid iaries

other

should

B u ild in g,

[Enc. Cir. No. 10,038]

to

t r a n s a c t i o n s between t h r i f t

DATE:

B o ar d

between

ad v ertise

and p r o d u c t s
certain

companies

on

by

refer

to

W„ W i l e s ,

Reserve

System ,

courtyard

between

the

BCB

Bo ar d

by

Docket
Secretary,
W ashington,

entrance,
Street

E ccles
and

-2 Constitution Avenue, Washington, 0 O C Q, between S ? 4 5
5s 15 polio

a 0m0 and

Comments may be inspected in Room B - 1 1 2 2

weekdaySo

between 8 s 4 5 a 0m 0 and 5 s l 5 p 0m 0 weekdays0
FOR FURTHER INFORMATION CONTACTS

G en era l Counsel

(202/452-3430),

(202/452-3594),

or

Scott

(202/452-3583),

Legal

Telecom m unications

J 0 V irg il

M elanie L 0 F e i n ,

Go

A lvarez,

D ivision ?

D evice

M attin gly,

for

the

Senior

Senior

or,

for

D eaf,

Dep uty
Counsel

A ttorney

users

of

Earn estin e

H ill

or

D o r o t h e a Thompson ( 2 0 2 / 4 5 2 - 3 5 4 4 ) „

SUPPLEMENTARY INFORMATIONS
several
th rift

ap p licatio n s
In stitu tio n s

Germain

D epository

estab lish ed

again st

a ffilia tio n
company„

of
See

A sso ciatio n ),

number

of

companies

Act

of

1982

(F id e lity

inform al

public

comments

from

pending

hearings

that

may
and

local
state

competing
and

and

bank
members

nation al

656
In

the

and

the

comment

bank

and

companies

Congress0

The

G arn-St
Bank

cases,
to

the

gu ar d

from

bank

the

holding
and

Loan

(1982) .
the

Bo ar d

au th o rities,

holding
of

the

Savings

developed

p u blic

reg u latory

of

resu lt
a

approved
acqu ire

designed

Federal

before

and

to

In approving t h e s e

con d ition s

were

Bo ar d h a s

p rovisions

in stitu tio n

con d ition s

ap p lication s

in stitu tio n s,

the

the

68 F e d e r a l R e s e r v e B u l l e t i n

sp ecific

groups,

to

effects

th rift

C itico rp

These

asso ciatio n s,

holding

( " BHC A c t n ) 0

adverse
a

1982,

In stitu tio n s

a

p ossib le

bank

pursuant

H o l d i n g Company A c t
Bo ar d

by

Since

context
and

of

after

that

included

th rift

trade

local
and

community

th rift

con d ition s

have

-3-

been

adopted

in

bank

h o ld in g

com pany

The
con tin u ed

each

to

be

and

operate

in tersta te

b an k in g

were

d esig n ed

a lso

company
other

from

banks

conduct

p erm itted

b an k in g
to

a

Among
to

a cco m p lish

o p era tio n s
com pany

to

not

a ffilia te s.

to

as

a

bank

of

the

th e

u n fa ir

p erm itted

purposes

th rift
These

len d in g

in

a

co m p etitiv e

to

bank

the

th rift

h o ld in g
over

th rift

to

com pan ies
th at

are

or
not

a sso cia tio n ,,
to
are

the

B o a r d 8s

approval

re strictio n s

in stitu tio n s
co n d itio n s

and

th eir

req u ire

on

bank h o l d i n g
su b sid iaries

bank

that?

company
sh all

adopted

certa in

C1D n© b a n k i n g o r o t h e r s u b s i d i a r y ®f
t h e bank h o l d i n g company s h a l l l i n k i t s
d e p o s i t - t a k i n g a c t i v i t i e s t® a c c o u n t s
a t th e t h r i f t i n s t i t u t i o n in a sweeping
a r r a n g e m e n t o r s i m i l a r a r r a n g e m e n t 9 and
the
its

the

co n d itio n s

advantage

h o ld in g

the

of

The

u sin g

bank

th rift

a c tiv itie s

v io la tio n

BHC A c t .

by

the

(a) the t h r i f t i n s t i t u t i o n b e operated as a
separate^
independent *
profifc-orienfeed
c o r p o r a t e e n t i t y and n o t b e o p e r a t e d i n
tandem w i t h any o t h e r s u b s i d i a r y o f t h e bank
h o l d i n g company.,
The t h r i f t i n s t i t u t i o n and
bank h o l d i n g company must l i m i t
th eir
o p e r a t i o n s t o e f f e c t t h i s c o n d i t i o n * and
must o b s e r v e t h e f o l l o w i n g c o n d i t i o n s ?

C2 D n e i t h e r
n o r any o f

by

in d ep en d en t

a cq u irin g

through

loan

th at

and

m ortgage

in stitu tio n s

and

a c q u isitio n

assure

separate

in

prevent

co n d itio n s

th ese

betw een

a

a c tiv itie s

savin gs
the

as

fact

an

th rift

d esign ed

p ro h ib itio n s

th rift

a c tiv itie s

con d u ctin g

in

a

1982 „

p rim a rily

o b ta in in g
and

in v o lv in g

were

operated

engaged

not

sin ce

co n d itio n s

in stitu tio n
d id

case

h o ld in g

-4 “
solicit deposits or loans for the
thrift institution, nor shall the
thrift institution solicit deposits or
loans for any other subsidiary of the
bank holding company,0 and
Cb ) to the extent necessary to ensure
independent operation of the thrift
institution and prevent the improper
diversion of funds, there shall be no
transactions between the thrift institution
and the bank holding company or any of its
subsidiaries without the prior approval of
the appropriate Federal Reserve Bank0 This
limitation
encompasses
the
transfer,
purchase, sale or loan of any assets or
liabilities, but does not include infusions
of capital by the bank holding company, the
payment of dividends or the sale of
residential real estate loans from the
thrift institution to any subsidiary of the
bank holding company0
Citicorp, which has acquired thrift institutions in
California, Illinois, and Florida subject to these conditions,
has requested relief from the above conditions in three general
areas, so as to permit its thrifts to jointly market and sell
products

and

services

with

other

Citicorp

affiliates,

to

cross-advertise the services and products of its affiliates
through

its

thrifts,

and

to

conduct

certain

transactions with other Citicorp a f f i l i a t e s .
that

the

con d ition s

su bsid iary
compared!

th rift
to

lo cal

p lace

the

in stitu tio n s
th rift

bank
at

su b je c t

op eration s

in

a

those

company and

and

none

its

disadvantage

bank

bank h o l d i n g

markets^

t o t h e B o a r d 0® c o n d i t i o n s 0

Citicorp contends

com petitive

in stitu tio n s

companies a s w e ll a s o u t - o f - s t a t e
nonbarakimg

holding

limited

holding

companies w ith
of

who® a r e

-5-

In this regard, Citicorp asserts that it will only
conduct cooperative programs that are permissible under the BHC
Act between CiticorpBs other subsidiaries.

Citicorp states

that its thrifts will not be operated as banks for purposes of
the BHC Act or branches of Citicorp3s subsidiary banks for
purposes

of

the

conditions

in

McFadden

(a )(.1)

Act.

Citicorp

and. (a)(2)

above

states
assure

that
this

the
by

prohibiting the linking of deposit-taking activities of thrift
institutions
prohibiting

in any
the

arrangement

solicitation

with

of

affiliates,

deposits

by

the

and

by

thrift

institution for its affiliates or by its affiliates for the
thrift institution.
In urging establishment of the conditions, commenters
asserted that the restrictions on operations are necessary to
prevent bank holding companies owning thrift institutions from
operating the thrift institution as a bank, and from gaining a
competitive
permitting

advantage

over

the thrift

local

institution

thrift

institutions

to appear

by

to the local

consumer to be offering commercial banking and other services
that thrift institutions are generally unable or not legally
permitted to offer.
cross-advertising
affiliates,

and

Commenters argued that joint marketing,

of products
transactions

and
with

services
bank

available

holding

affiliates also may permit a thrift to avoid

from

company

restrictions

imposed by the Garn-St Germain Act on the activities of federal
S&Ls.

Commenters argue further that the use of joint marketing

-6 or cross-advertising may permit

the thrift

institution

to

operate in effect as branches for soliciting deposits or loans
for its bank affiliates,

thereby undermining the interstate

banking prohibitions.
The Board believes that the recent requests for relief
from the above restrictions on operations present a framework
for evaluating whether the conditions have accomplished their
intended purposes and the continued appropriateness of the
conditions.

Commenters are requested to evaluate these matters

taking into account, among other things, the significance of
the deregulation of interest rate differentials,

increasing

similarity in the powers of banks and thrifts, and the spread
of interstate deposit-taking in both the thrift and banking
industrieSc

The Board believes that, in considering action in

this area, it is appropriate to seek public comment, in light
of the significant public participation that surrounded the
original development of the conditions,,
Accordingly, the Board seeks public comment on whether
the restrictions,

other

than

the

restrictions

on

linking

deposit-taking activities and cross-solicitation of deposits,
should be retained, modified or removed,
the Board

to evaluate

the conditions,

In order to permit
the Board

requests

-comment on whether it continues to be necessary and. appropriate
to limit thrifts affiliated with bank holding companies from
conducting activities and marketing services that both thrifts
and bank holding companies are otherwise permitted to conduct

-7 -

and market under applicable federal law in order to accomplish
the goals

of

interstate

avoiding

the

undermining

deposit-taking

competition0

and

on

In this connection^,

of

limitations

preventing

on

unfair

the Board also notes that

affiliation of bank holding companies with thrift institutions
does-" not raise the same concerns regarding the separation of
banking and
similar

commerce

restrictions

organization

and

a

that
on

has

motivated

operations

bank

or

consideration

between

thrift

a

of

commercial

affiliate

that

is

contemplated by currently pending legislation^ and commenters
are

requested

to

take

these

differences

into

account

in

formulating their comments„
The

Board

also

requests

comment

deregulation of interest rate differentials
powers of thrifts,

on

whether

the

„

expansion of the

the growing number of states authorizing

interstate banking^ and similar events since the formulation of
the

Board°s

conditions

have

affected

the

restrictions to accomplish their objectives,,

need

for

the

In this regard^

the acquisition of a thrift by a bank holding company that is
located in the same state or that is authorized under' state law
to acquire a bank In the state in which the thrift Is located
does not raise the concern that the acquisition may evade the
BHC Act°s limitations on interstate bank acquisitions„

The

Board requests comment on the extent to which the restrictions
should be modified in these situations*,

-8-

The

Board

also

requests

comment

on

whether

modification of the restrictions in any of the following areas
would adversely affect their policy goals?
Joint Marketing and Sales?

Specifically,

the Board

requests comment on whether thrift institutions owned by bank
holding

companies

should

be

permitted

to

conduct

joint

marketing and sales activities with their bank holding company
affiliates*

For example,

should a thrift institution and a

bank holding company real estate lending affiliate be permitted
to jointly solicit business from a real estate developer, with
the

real

estate

lending

affiliate

offering

to

provide

construction lending for a building project and the thrift
offering

to

provide

end

loan

financing

purchasers of the real estate project*

for

prospective

In addition, should a

holding company affiliate be permitted to introduce existing
corporate customers to the thrift institution for the purpose
of obtaining

relocation

assistance

or

other

products

and

services available through the thrift institution*
In this regard, the Board requests comment on whether
any adverse effects that may result

from conducting

joint

marketing and sales activities are sufficiently limited by
retaining

the

condition

prohibiting

the

linking

of

deposit-taking activities, and by requiring that the terms and
pricing of services not be tied in any way and be the same
regardless of whether the prospective customer obtains services
from both the thrift institution and its affiliate or from only
one of the institutions*

-9 “

Cross
requests

Advertising

comment

and

on whether

Referral;

thrift

The

Board

institutions

also

should be

permitted to offer access to services and products of its bank
holding company affiliates, and bank holding company affiliates
should be permitted to offer access to services and products
offered by the thrift institutions.

For example,

should a

thrift institution be permitted to make applications available
to its customers for credit cards marketed by and student loans
underwritten by its bank holding company affiliates? advertise
the

products

brochures

and

and

services

posters

of

its

in branch

affiliates
offices

of

by

placing

the

thrift

institution and by including advertising inserts
statements of customers of the thrift

in monthly

institution?

provide

customer lists to its bank holding company affiliates?
refer

its customers

to affiliates

and provide promotional

material and a toll-free number for the affiliate.
should

bank

institutions

holding
be

company

permitted

to

and,

affiliates

of

advertise

the

the

Similarly,
thrift

products

and

services of the thrift institutions.
The Board also seeks comment on whether any adverse
effects that may result from cross-advertising and referral
activities may be limited by maintaining the current conditions
prohibiting the thrift institution from soliciting deposits for
its bank .holding company

affiliates

and

prohibiting

holding company affiliates from soliciting deposits

bank

for the

thrift institution, and by imposing conditions preventing the

-1 0 =

thrift institution from providing credit analysis in connection
with loans provided to customers of the thrift by a bank
holding company affiliate, from disbursing credit funds on such
loans, and from otherwise acting as a branch or loan production
office of any holding company affiliate.
Transactions with Affiliates^

The Board also requests

comment on whether thrift institutions should be permitted to
use services and products of bank holding company affiliates
for the benefit of the thrift or its customers „

For example,

should a thrift institution be permitted to locate a branch
office in a building owned by an affiliate and in which holding
company affiliates also have offices with separate access.

Board of Governors of the Federal Reserve

System,

May 16, 1986.

(signed) William W. Wiles

William W. Wiles
Secretary of the Board