The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
FEDERAL RESERVE BAMK
OF MEW YORK
September
[ Circular No.25, 1987 J
10193 ~|
PROPOSED AMENDMENT TO REGULATION Y
REGARDING THE ACQUISITION OF THRIFT INSTITUTIONS
BY BANK HOLDING COMPANIES
Comment Invited by November 20
To All Depository Institutions, Bank Holding Companies,
and Others Concerned, in the Second Federal Reserve District:
F o llo w in g is the text o f a statement issued by the B oard o f G overnors o f the Federal Reserve
System:
The Federal Reserve Board has requested comment on whether it should permit bank holding
companies to acquire healthy thrift institutions and the terms and conditions under which such acquisi
tions might be permitted.
Comment is requested by November 20, 1987.
Currently, acquisition of a healthy thrift institution is not a permissible activity for a bank holding
company under the Board’s rules. However, changes in the economic and regulatory environment have
prompted the Board to seek comment on whether this policy should be changed.
The Bank Holding Company Act does not specifically authorize or prohibit bank holding
companies from acquiring thrift institutions. However, in 1977 with the D.H. Baldwin decision, the
Board determined that operation of a healthy thrift institution was closely related to banking but was not a
“proper incident thereto.” Accordingly, the Board has restricted its approvals to acquisitions of failing
thrifts only.
The most important motivation for reconsideration of the D.H. Baldwin decision is the major devel
opments in the interstate provision of depository institutions services both by banks and thrifts.
In addition to comment on whether bank holding companies may acquire and operate healthy
thrifts, the Board requests comment on the terms and conditions under which this activity might be al
lowed.
Enclosed — fo r depository institutions and bank holding companies in this D is tric t — is a copy
o f the text o f the proposal, w hich has been subm itted fo r publication in the
Federal Register, copies
w ill be furnished to others upon request directed to the C irculars D iv is io n o f this B a n k (T e l. N o .
2 1 2 -7 2 0 -5 2 1 5 or 5 2 1 6 ). Com m ents on the proposal should be subm itted by N o v e m b e r 2 0 , 1987,
and m ay be sent to the B oard, as indicated in the notice, or to our D om estic B an kin g A pplications
D iv is io n .
E . G e r a l d C o r r ig a n ,
President.
FEDERAL RESERVE SYSTEM
12 CFR Part 225
(Regulation Y; Docket No. R-0614)
Bank Holding Companies and Change in Bank Control
Board Policy Regarding the Acquisition and Operation of
Thrift Institutions By Bank Holding Companies
AGENCY:
Board of Governors of the Federal Reserve System.
ACTION:
Solicitation of public comment.
SUMMARY:
The Federal Reserve Board is soliciting comment on
whether,
in light of changing economic and regulatory
circumstances, the Board should determine that the acquisition
and operation of thrift institutions by bank holding companies
is, as a general matter, a proper incident to banking under the
Bank Holding Company Act, and, on this basis, a permissible
activity for bank holding companies under the Act and
Regulation Y.
12 C.F.R. § 225.25.
The Board has previously
determined that the operation of a thrift institution is
closely related to banking, but has permitted bank holding
companies to acquire thrifts only where the acquisition
involved a failing thrift institution.
The Board also seeks
comment on the terms and conditions under which bank holding
companies should be permitted to acquire and operate healthy
thrift institutions, if it should determine to allow such
acquisitions .
DATE:
Comments must be received by November 20, 1987.
ADDRESS:
All comments, which should refer to Docket No.
R-0614, should be mailed to William W. Wiles, Secretary, Board
of Governors of the Federal Reserve System, Washington, D.C.
20551, or delivered to Room B-2223, 20th & Constitution Avenue,
N.Wo, Washington, D.C., between 8:45 a.m. and 5:15 p.m.
weekdays.
Comments may be inspected in Room B-1122 between
8:45 a.m. and 5:15 p.m. weekdays.
FOR FURTHER INFORMATION CONTACT:
J. Virgil Mattingly, Deputy
General Counsel
(202/452-3430)., Scott G. Alvarez, Senior
Counsel (202/452-3583), Michael J. O'Rourke, Senior Attorney
(202/452-3288),
Legal
Division?
Roger
Cole,
Manager
(202/452-2618) , or Molly Wassom, Senior Financial Analyst
(202/452-2305), Division of Banking Supervision and Regulation,
Board of Governors of the Federal Reserve System, Washington,
D.C. 20551.
For the hearing impaired only, Telecommunications
Service for the Deaf, Earnestine Hill or Dorothea Thompson,
(202/452-3544).
[Enc. C ir. No. 10193]
2
SUPPLEMENTARY INFORMATION:
Io
INTRODUCTIONs The purpose of this request for comment is
to assist the Board in its review of Board policy regarding the
acquisition and operation of thrift institutions by bank
holding companies, and to obtain the commenters' views as to
whether any changes to that policy are appropriate in light of
changing economic and regulatory circumstances®
The Board is
now considering adding to the list of permissible nonbanking
activities in Regulation Y the acquisition and operation of
thrift institutionso
To date, however, the Board has approved
only the acquisition of failing thrift institutions, and not
thrift institutions generally,,
Its rationale for adopting that
policy was articulated in the Board's 1977 D 0H® Baldwin
decision,JV which is discussed below0
IIo
Background §
Ao
Statutory and Regulatory Framework®
The BHC Act does not specifically authorize or
prohibit bank holding companies
from acquiring
thrift
institutionso
Rather, the Act contains a general prohibition
against bank holding companies acquiring companies engaged in
any activity unless the Board has determined the activity to be
"so closely related to banking . . 0 as to be a proper incident
thereto" within the meaning of section 4(c) (8) of the BHC A c t 0
12 U.S.C® § 1843(c)(8).
Section 4(c)(8) thus imposes a two
step test for determining the permissibility of nonbanking
activities for bank holding companies? (1) whether the activity
is closely related to banking; and (2) whether the activity is
a proper incident to banking -- that is, whether the proposed
activity can reasonably be expected to produce benefits to the
public that outweigh possible adverse effects®.?/
When the Board adopted the initial list of permissible
nonbanking activities for bank holding companies in 1971, it
did not include the operation of an SSL®
(36 Federal Register
1077 (1971))o
Notwithstanding its 1971 decision not to include
the operation of SSLs in the Regulation Y laundry list of
permissible nonbanking activities, the Board in 1972 and 1975
approved applications from New England thrifts to become bank
holding companies by acquiring commercial banks, in view of the
unique, longstanding affiliation between thrifts and commercial
W
DoHo
(1987)o
Baldwin
Company, 63
Federal
Reserve
Bulletin
280
2/
See Board of Governors v. Investment Company Institute, 450
U.So 46 (1984); National Courier Ass'n v 0 Board of Governors,
516 F o2d 1229 (D.C. Cir® 1975)®
3
banks
in that region.2/
With these few exceptions, prior to
the Board did not permit bank holding companies to acquire
thrift institutions.
The reasons for 'this policy were
articulated in the Board's 1977 order denying an application by
D.H. Baldwin, at the time a registered bank holding company, to
retain ownership of a healthy savings and loan association it
had acquired in 1969 before it became a bank holding company.!/
1982
Bo The DoHo Baldwin CaseQ
In D .H „ Baldwin, the Board determined that as a
general matter operating an S&L is closely related to banking,
but ruled that such activities should not be regarded as a
proper incident to banking; that is, as a general matter the
public benefits associated with the affiliation of a bank and a
thrift were not sufficient to outweigh the adverse effects of
such an affiliation.
This determination was based on three
factors;
(1) the perception of a competing and conflicting
regulatory framework governing banks and S&Ls;
(2) the
possibility that cross-industry acquisitions would undermine
the perceived rivalry between the banking and
thrift
industries; and (3) the possibility that such acquisitions
could undermine the interstate banking restrictions of the
Douglas Amendment to the Bank Holding Company Act ("Act" or
"BHC Act").
Since that time, in all its orders regarding
thrift acquisitions, the Board has continued to maintain the
position that, as a general matter, the acquisition of a thrift
institution is not a proper incident to banking.
Co
Worsening Condition of the Thrift
First Failing Thrift Acquisitions0
Industry
and
the
In 1981, in response to worsening conditions in the
thrift industry, the Board informed the Congress that it might
be forced to allow bank holding companies to acquire failing
thrifts, and requested passage of the so-called Regulators
Bill, which provided a series of procedures and priorities to
guide
the Bank
Board's discretion in approving such
acquisitions and otherwise to provide capital assistance to
troubled thrifts.
Before the proposed legislation could be enacted,
however, the Board was faced with two proposals by bank holding
companies to acquire failing
thrifts,
proposals which
necessitated the Board's immediate consideration in order to
2/
Newport Savings and Loan Association, 58 Federal Reserve
Bulletin 313 (1972); Old Colony Co-Operative Bank, 58 Federal
Reserve Bulletin 417
(1972) ; Profile Bancshares,
Inc0,
61 Federal Reserve Bulletin 901 (1975)0
!/
D.H.
(1977) .
Baldwin
Company, 63
Federal
Reserve
Bulletin
280
4
avoid the probable failure of the institut ions. The first,
Scioto Savings Association in Ohio, was acquired by an instate
bank holding company at the urging of 'the Ohio Thrift
Commissioner.1/
In the s e c o n d , £/
the Federal Home Loan Bank
Board requested that the Board allow Citicorp to acquire
Fidelity Federal Savings and Loan of San Francisco0 To allay
the concerns of interested trade groups, state regulatory
authorities, competing banks, members of Congress, community
groups and others, whose opposition could have required the
Board to conduct a time consuming formal hearing on the
application and thus jeopardize the attempt to rescue the
institution, the Board imposed a series of conditions on the
operations of an S&L acquired by a bank holding company,.
Several of these conditions, such as continued operation of the
institution as a thrift and branching restrictions, reflect the
terms or spirit of the then-pending Garn-St Germain Depository
Institutions Act of 1982,
As part of this process, the Board
also imposed conditions that limited
transactions
and
operations between a thrift institution owned by a bank holding
company and its affiliates.
These conditions, known as the
tandem operations restrictions, have been imposed on all thrift
acquisitions since that time.Z/
The
tandem operation
restrictions will be reviewed below with respect to the Board's
request for comment regarding the terms and conditions under
which bank holding companies should acquire and operate thrift
institutions, should the Board determine that, as a general
matter, this activity is a proper incident to banking.
Do The 1982 Garn-St Germain A c t ,
Shortly after the Board's approval of the Fidelity
acquisition by Citicorp, Congress passed the Garn-St Germain
Depository Institutions Act, which authorized the purchase of
ailing S&LS by out-of-state bank holding companies, provided
the FSLIC follows certain bidding procedures that gave priority
to intra-industry acquisitions and in-state organizations.
In
addition to the bidding priorities, the Garn-St Germain Act
required that FSLIC minimize the cost for any S&L rescue?
Interstate
Financial
Corporation
(Scioto
Savings
Association), 68 Federal Reserve Bulletin 316 (1982) ,
—/
6/
Citicorp (Fidelity Federal Savings
Reserve Bulletin 656 (1982),
and
Loan), 68 Federal
Z/
Citicorp petitioned the Board for relief from these
conditions.
In response,
the Board issued a proposed
rulemaking requesting comment on the tandem restrictions.
The
Board recently has rendered its decision on the conditions.
See Letter of William W, Wiles, Secretary, Board of Governors
of the Federal Reserve System, to Patrick Mulhern, Senior Vice
President and General Counsel, Citicorp (Aug, 10, 1987),
5
allowed the Board to waive the notice and hearing requirements
of section 4 of the BHC Act in approving failing thrift
acquisitions; and excluded FSLIC-insured* thrifts from the
definition of bank in the Bank Holding Company Act, thereby
permitting such acquisitions under the interstate banking
provisions of the Douglas Amendment.
The act also expressly
limited the expansion of the acquired S&L to those locations
where a national bank could branch in the stateQ
Throughout the course of the debate leading to passage
of the Garn-St Germain Act, the Chairman of the Federal Reserve
Board made clear the Board's belief that it could exercise its
existing authority to approve acquisitions of thrifts by bank
holding companies.®/
As a policy matter,
however,
the
Chairman indicated that the Board had not yet exercised that
power, because to do so would open up larger questions of
interstate
banking
and
healthy
thrift
acquisitions
generally.£/
This view, that the Board could exercise
existing powers to approve such acquisitions, was shared by
members
of Congress,!£/the acting Comptroller
of the
£/ Ch airman Volcker stated that:
"One of the difficulties -a major difficulty -- is not that we don't have those powers
[to authorize bank holding company acquisitions of thrifts] but
that they are not directed and limitedo
This bill provides a
sense of priorities.
Without it, we would be forced back on
those powers, which I feel quite certain, would open up broader
issues than is probably necessary to open up at this particular
time.
This bill gives us the specific authority to deal just
with institutions in serious difficulty."
The Deposit
Insurance Flexibility Act:
Hearing on H.R. 4603 Before the
Subcommittee on Financial Institutions Supervision, Regulation,
and Insurance of the House Committee on Banking, Finance and
Urban Affairs, 97 Cong., 1st Sess. 167, 181 (1981) ("1981 House
Hear ings ") 0
Ido,
at 177.
(refrain from exercising existing
authority.)
Chairman Volcker continued his testimony by
stating that if the Board used its existing authority to allow
bank holding companies to acquire thrifts, it would be
difficult or impossible to limit the Board's power to the
acquisition of failing thrifts.
Id_. , at 191.
12/
See e
, 127 Cong. Rec. H7798 (daily e d . Oct. 27, 1981)
(remarks of Rep. Vento); 127 Cong. Rec. H7795 (daily ed. Oct.
27, 1981) (remarks of Rep. Wylie).
6
.i
L/
L/
L
Currency,
the Department of Justice,
the Federal Home
Loan Bank Board,Li./ and groups opposing the pending
legislation such as the Independent Bankers Association of
America, among others.Li/
Without passage of the Garn-St
Germain Act, the Chairman and others indicated the Board might
be forced to use the Board's more general powers to approve
such acquisitions,LL/ and there was doubt whether, as a legal
matter, the Board could limit its grant of approval to failing
institutions only0
Eo__ Thrift Acquisitions Since the 1982
Garn-St Germain Ac t o
Since passage of the Garn-St Germain Act in October,
1982, the Board has continued to approve the acquisition of
failing thrifts, particularly in response to the Ohio and
Maryland thrift crises.LL/
In all of these instances, the
Board imposed conditions substantially similar to those laid
out in the First Fidelity Order.
The Board has limited its
approval to acquisitions of failing thrifts only, and, when
LI/
Financial Institutions Restructuring and Services Act of
1981;
Hearings on S.1686, S.17Q3, S.1720, and S.1721 Before
the Senate Committee on Banking, Housing, and Urban Affairs,
97th Cong. 1st Sess. 26 (1981) (Part III) (hereafter, the "1981
Senate Hearings, Parts I, II and III", as appropriate).
— /
Conduct of Monetary Policy;
Hearings Before the House
Committee on Banking, Finance and Urban Affairs, 97th Cong.
1st Sess. 956 (1981) (hereafter, "1981 House Monetary Policy
Hearings').
LI/
1981 House Monetary Policy Hearings at 109.
L/
i
L/
i
1981 House Hearings at 88, 95.
See footnote 9, supra. See also Capital Assistance Act
and Deposit Insurance Flexibility A c t s Hearings on S.2531 and
S.2532 Before the Senate Committee on Banking, Housing, and
Urban Affairs, 97th Cong., 2d Sess. 54 (1982) (hereafter, "1982
Senate Hearings”) (remarks of Sen. Riegle); 1982 Senate
Hearings at 144 (remarks of Sen D'Amato); and 1982 Senate
Hearings at 369 (remarks of Sen. Garn).
L/
i
These provisions have recently been renewed with the,
passage of the Competitive Equality Banking Act of 1987, Pub.
L. No. 100=86 (enacted Aug. 10, 1987) ("CEBA").
7
presented with an application by Old Stone Corporation to
acquire in essence a healthy thrift in June, 1984, the Board
denied the application . L .
JZ/
Out of the* approximately 18
acquisitions of failing thrifts approved by the Board since
1982, currently only 7 remain in operation as thrifts, with the
others having been converted to bank statuso
III,
The Changing Economic and Regulatory Climate.
,
This request for comment is prompted by certain
economic and regulatory changes since 1982 that may implicate
possible changes to the Board's current bank/thrift policy.
First, interstate banking has become widespread in the last two
yearso
Approximately 23 states have authorized (or will
authorize within the next 18 months) nationwide interstate
banking, and only seven states have not yet authorized either
regional or nationwide interstate banking.
The remaining
states have entered, or are about to enter, into regional
interstate banking compacts.
In addition, the FHLBB has
approved over 50 acquisitions by thrifts of failing thrifts on
an interstate basis, and also has recently allowed interstate
branching under certain circumstances.
This development tends
to undermine one of the basic reasons for the D.H. Baldwin
decision —
concern about impairing the Congressional policy
embodied in the Douglas Amendment.
Second, recent changes in the law substantially
broadening the powers of thrift institutions may have tended to
erode the distinction between thrift institutions and banks at
which the Board’s conditions were directed.
For example,
thrift institutions have in the past several years been granted
broad powers to conduct additional activities, including
authority to make commercial and nonhousing related loans and
to accept NOW accounts as well as demand deposits in certain
circumstances —
all services that are offered by commercial
banks.
The elimination of the interest rate differential has
removed another significant distinction between banks and
thrifts.
Third, it has been publicly reported that certain
thrifts have considered leaving the FSLIC fund for a number of
reasons.
Thrifts, if converted to banks, may be attractive
acquisition vehicles for bank holding companies to increase
their market share on an intra-state basis, or as a
cost-effective means to establish a regional banking network.
Thrift institutions may also be priced more favorably, in terms
of multiples of earnings, than are similarly situated banks.
Moreover, there may be enhanced incentives for the thrifts
themselves to consider converting their charter and applying
for FDIC insurance.
The imposition of a special FSLIC
insurance premium has been publicly cited by some thrifts as an
Old Stone Corporation
Bulletin 593 (1984).
(Catawba), 70
Federal
Reserve
8
incentive to leave the fund.
Although the recent passage of
CEBA imposes a temporary moratorium on such conversions, upon
its expiration thrifts would be eligible to convert their
charters and opt for FDIC insurance upon payment of twice their
regular and annual premiums to the FSLIC, among other
requirements .i§/
See CEBA, Pub. L 0 No. 100-86, § 306(h);
§ 302(b) ( 4 ) (B) . With this recent increased interest in the
conversion of FSLIC-insured thrifts to bank status, the FHLBB
has indicated that such conversions may affect the FSLIC's
recapitalization plans by reducing the flow of insurance
premiums to FSLIC.19/
Finally, it can be argued that the Board's existing
policy itself serves as an incentive for healthy thrifts to
seek to leave the FSLIC fund.
Under current Board policy, a
bank holding company wishing to acquire a healthy thrift in the
holding company's home state or banking region has no
alternative but to convert the thrift into a bank which it may
acquire, because the Board's D 0H. Baldwin policy will not
permit the holding company to acquire and operate the healthy
thrift as a thrift.
Accordingly, in light of the above factors, it appears
that current
(and changing)
financial and regulatory
circumstance may warrant a review of the Board's policies
regarding the acquisition and operation of thrift institutions
by bank holding companies.
The Board requests comment on the
implications of such changing circumstances for its current
policies, as well as commenters' views on what additional
factors, if any, the Board should consider in reaching its
determination„
Ao Public Benefits Considerations.
Commenters may also wish to consider the nature of any
impact on the FSLIC fund if the Board were to approve the
acquisition of healthy thrifts.
On the one hand, it could be
argued that Board approval of the acquisition by bank holding
companies of healthy thrifts could lower the incentive for
those companies to bid on failing thrift institutions.
On the
18/ Other provisions of CEBA might serve as a d i s incentive for
particular thrifts to leave the FSLIC fund, depending on the
extent of that institution's so-called "secondary reserves".
See New Law Punishes Thrifts Leaving FSLIC Before 1993, A m .
Banker, Sept. 2, 1987, at 3 ("Thrift Article").
19/
See Testimony of Edwin Gray, Chairman, Federal Home Loan
Bank Board, Before the Subcommittee on General Oversight and
Investigations of the House Committee on Banking, Housing and
Urban Affairs 10-13 (May 14, 1987); and a similar statement
before the Senate Committee on Banking, Housing and Urban
Affairs 3-4 (May 21, 1987).
9
other hand, bank holding company acquisition of healthy
thrifts, and their continued operation as thrifts, could
provide the FSLIC with a continued, stable source of insurance
premiums „
At this juncture, it should be noted that bank holding
companies' acquisition of thrifts has not to date provided the
solution to the problems of the thrift industry.
Currently, in
addition to Citicorp's 4 S&Ls, only three additional thrifts
acquired by bank holding companies are still operating as
thrift
institutions,
and
they
are
relatively
small
institutions.
Moreover, most thrift problems to date have been
resolved on a intra-industry basis through mergers with other
S& Ls o
As noted above, one of the important motivations for a
reconsideration of the D.H. Baldwin decision is the major
developments in the interstate provision of depository
institution services by both banks and thrifts,
Nevertheless,
this development is still circumscribed by the decisions of
most states that have authorized some form of out-of-state
acquisitions to keep interstate expansion within specific
regions.
In view of the fact that the Board considered that
the D.H. Baldwin decision was necessary in order to prevent the
undermining of the Douglas Amendment, the question arises, with
respect to the scope of any authorization for acquisition of
healthy thrifts, whether the Board should limit the acquisition
of healthy thrifts to those geographic areas where a bank
holding company would be permitted to buy a bank under the
Douglas Amendment,
Such an approach would allow bank holding
companies to purchase healthy thrifts in their home state, or
in those states where acquisitions are permitted because of a
regional arrangement, or a reciprocal or other authorization of
interstate banking.
Comment is requested on whether such a
limitation is necessary to carry out the Board's original
intention of giving effect to the intent of the Douglas
Amendment, and on whether such a limitation is still necessary
in the light of present interstate banking arrangements.
Comment is also requested on whether such a policy would be
effective in accomplishing the public benefits of encouraging
the acquisition of failing thrifts, and of avoiding the
creation of artificial incentives for healthy thrifts to
withdraw from participation in the FSLIC.
Bo
Conditions Under Which the Board Should Allow
the Acquisition and Operation of Thrift
Institutions Generally.
If the Board should determine that the operation of a
thrift institution as a general matter is a proper incident to
banking, then the issue remains as to the terms and conditions
under which it should allow the conduct of this activity.
10
Commencing with the 1982 acquisition by Citicorp of
Fidelity Federal Savings and Loan of San Francisco and
continuing to the present, the Board has' imposed a series of
conditions on the operation of thrift institutions by bank
holding companies.
These conditions were imposed in direct
response to the concerns voiced by banking organizations,
thrift institutions, their trade groups, state regulators, and
others opposed to the acquisitions that:
(1)
the bank holding
companies would divert funds from the S&Ls and housing needs in
the home states of the S&Ls to other areas served by the bank
holding company or its affiliates; (2)
the bank holding
companies would use the S&Ls - to advance the business or
operations of other holding company subsidiaries; (3)
the
acquisitions would erode interstate banking prohibitions and
the statutory distinctions
between
banks
and
thrift
institutions; (4)
the thrifts would be operated as banks or
branches of bank affiliates in violation of statutory
limitations on interstate banking and bank branching; and,
(5)
the acquisitions would give the bank holding company and
its S&Ls an unfair competitive advantage over other banks and
thrifts o
Among
the
conditions
established
were
requirements
that:
(1)
the bank holding company would operate the S&Ls
as savings and loan associations having as their
primary purpose the provision of residential housing credit;
(2)
the S&Ls would not engage in any activities not
permissible for a bank holding company;
(3)
the S&Ls would not establish new branches at
locations not permissible for national or state banks
located in the state where the S&L is located (a
specific requirement of the Garn-St Germain Act, which
authorises acquisitions by bank holding companies of
failing thrifts);
(4)
the S&Ls would be operated as separate,
independent, profit-oriented corporate entities and
would not be operated in tandem with any other
subsidiary of the bank holding company.,
In order to
carry out this condition, the bank holding company and
S&Ls would limit their operations so that:
(a)
no banking or other subsidiary of the bank
holding company would link its deposit-taking
activities to accounts at the S&Ls in a sweeping
arrangement or similar arrangement;
11
(b)
the S&Ls would not directly or indirectly
solicit deposits or loans for any other subsidiary
of the bank holding company*and the bank holding
company and its subsidiaries would not solicit
deposits or loans for the S&Ls?
(5)
to the extent necessary to insure independent
operation of the S&L and prevent the improper
diversion of funds, the S&Ls would not engage in any
transactions with the bank holding company or its
other subsidiaries without prior approval of the
appropriate Federal Reserve Bank?
(6)
the S&L would not establish or operate remote
service units at any location outside of the home
state of the S&L?
(7)
the bank holding company would not change the
name of the S&L to include the word "bank" or any
other term that might confuse the public regarding the
S&Ls status as a nonbank, thrift institution? and
(8)
the S&L would not convert its charter to a bank
charter or a state thrift charter without prior Board
approval„
Board approvals of all thrift acquisitions by bank
holding companies since 1982 have contained substantially
similar restrictions„ In response to a request by Citicorp for
relief from the tandem operation restrictions (conditions 4 and
5 above), the Board requested public comment on whether it
should retain, modify or remove the fourth and fifth
conditions *.20/
On August 10th of this year, the Board granted certain
limited relief from those restrictions, principally with
respect to allowing such tandem operations where a bank holding
company could otherwise acquire and operate a commercial bank
in the state where the thrift is located, on the basis that
such joint operations would not implicate the Board's concerns
regarding the preservation of the integrity of the Douglas
20/ Citicorp contended that the requested relief is necessary
to enable its S&Ls to offer a broader range of services and to
utilize the advantages inherent in the bank holding company
structure
(particularly,
economies
of
scale
and
cross-marketing) in order to maintain its S&Ls as competitive
institutions in the S&L industry.
12
Amendment in such situations.21/
The Board also allowed the
Citicorp S&L to affiliate with the Citishare ATM switch in
order to reduce the cost to the thrifts of joining certain ATM
ne twor ks 0
At this time, in connection with the proposed addition
of the operation of a thrift institution to Regulation Y's list
of permissible nonbanking activities, the Board will consider
more generally the terms and conditions under which bank
holding companies may be permitted to acquire and operate
thrift institutions. The first and third of these conditions
listed above -- continued operation of the thrift as a thrift,
and restrictions on establishment of new thrift branches to
those locations permissible for banks in the state -- reflect
the terms or spirit of the Garn-St Germain Act emergency thrift
acquisition provisions,,
Retention of the first condition would
reflect the Congressional intent behind that Act to maintain a
separate thrift industry to
serve the nation's housing needs,,
The limitation on branching except as permitted for national
banks (the third condition) appears necessary to maintain the
integrity of the Garn St Germain A c t ’s emergency thrift
acquisition provisions.
If a bank holding company could
acquire a healthy thrift without such a branching limitation,
the incentive for bank holding companies to acquire failing
thrifts would decrease, and the cost to the FSLIC of resolving
those situations could well increase,,
Finally, commenters
should direct their attention to whether these conditions are
necessary to preserve the integrity of the Douglas Amendment to
the BHC Act, which reserves to the states the decision to allow
out-of-state bank holding companies to acquire banking
institutions in the state,.
Continued imposition of the second
condition -- that a thrift subsidiary of a bank holding company
should engage only in activities permissible for bank holding
companies -- is required by the BHC Act.22/
The Board is prepared to entertain comments with
respect to any terms or conditions under which bank holding
companies may acquire and operate thrift institutions„
COHCLUSIOHg In sum, the Board believes that changing economic
and regulatory circumstances render it appropriate to review
the Board's overall policy regarding the acquisition and
operation of thrift institutions by bank holding companies,,
21/
s e e L e t t e r o f Wi l l i a m W W i l e s , S e c r e t a r y , F e d e r a l Reserve
„
Board, t o P a t r i c k Mulhern, Se ni or Vi c e P r e s i d e n t and General
Co u ns e l , C i t i c o r p (Aug„ 10, 1987).
22/
382
Central
(1982)o
Pacific Corporation, 68 Federal Reserve Bulletin
13
The Board will consider the following options
respect to this issue:
1.
maintain the current Do H 0 Baldwin policy;
with
2.
modify the D.H. Baldwin policy to allow the
acquisition of thrifts where a bank holding
company could otherwise own a bank; and
3.
overrule the D.H. Baldwin policy and allow the
acquisition of healthy thrifts nationwide.
The Board requests comment on the advisability of selecting one
of these options, or the availability of additional courses of
action for its consideration.
The Board also requests comment
on the terms and conditions under which thrift institutions may
be acquired and operated by bank holding companies, if the
Board determines to allow such acquisitions a general matter.
REGULATORY FLEXIBILITY ACT ANALYSIS
This proposal to expand the permissible nonbanking
activities of bank holding companies is not expected to have a
significant economic impact on a substantial number of small
business entities within the meaning of the Regulatory
Flexibility Act (5 U.S.C. § 601 et seq.) .
The Board is
required by section 4(c) (8) of the BHC Act, 12 U.S.C.
§ 1843(c)(8), to determine whether nonbanking activities are
closely related to banking and a proper incident thereto, and
thus are permissible for bank holding companies.
This
proposal, if adopted, would permit bank holding companies to
acquire and operate healthy thrift institutions -- an activity
bank holding companies are not now permitted to conduct.
The
proposal does not impose more burdensome requirements on bank
holding companies than are currently applicable, and these
provisions provide no barrier to meaningful participation by
small bank holding companies in the proposed activity.
The Board notes that there are not a significant
number of small bank holding companies engaged in the operation
of thrift institutions at this time.
As noted, bank holding
companies have not previously been permitted to acquire healthy
thrift; the proposal, if adopted, would expand the powers of
bank holding companies by authorizing bank holding companies to
cquire healthy, in addition to failing, thrift institutions.
List of Subjects in 12 CoF, R« 225
Banks, banking, Federal Reserve System,
Holding
companies, Reporting and recordkeeping requirements.
For the reasons set out in this notice, and pursuant
to the Board's authority under section 5(b) of the Bank Holding
Company Act of 1956, as amended (12 U.S.C. § 1844(b)), the
Board solicits comment regarding the possible amendment of
12 C.F.R. Part 225.
14
The Board solicits comment regarding a proposed
amendment to Section 225.25(b), to add a paragraph (9) to the
Board's list of permissible nonbanking activities, which may
read as follows:
(9)
Thrift Institutions.
Acquiring and
operating thrift institutions,
including
savings and loan associations, building and
loan associations, and FSLIC - insured
savings banks, so long as the institution is
not a banko
In connection with solicitation of comment regarding a
possible amendment to Regulation Y to authorize the acquisition
and operation of healthy thrift institutions, the Board also
seeks comment regarding the terms and conditions which the
proposed activity should be conducted, should the Board
determine to allow such acquisitions as a general matter0 In
that regard, the commenters' particular attention is drawn to
the terms and conditions specified above that the Board
traditionally has imposed on failing thrift acquisitions, and,
as well, the Board's August 10, 1987 determination to grant
certain limited relief from those conditions0
Board of Governors
September 18, 19870
of
the Federal
Reserve
System,
(signed) James McAfee
James McAfee
Associate Secretary of the Board
@FedFRASER