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FEDERAL RESERVE BANK OF NEW YORK [ Circular No. 10726 August 18, 1994 ~| ANTI-TYING PROVISIONS OF REGULATION Y Discounts Allowed in Traditional Bank Products or Brokerage Services Tied to Traditional Bank Products of Affiliates Proposal to Permit Discounts on Any Product of a Bank Holding Company or Nonbank Subsidiary Tied to Any Product of a Nonbank Affiliate C o m m e n ts I n v ite d b y S e p te m b e r 1 7 To A l l B a n k H o l d i n g C o m p a n i e s , a n d O t h e r s C o n c e r n e d , in th e S e c o n d F e d e r a l R e s e r v e D i s t r i c t : Following is the text of a statement issued by the Board of Governors of the Federal Reserve System: The Federal Reserve Board has announced adoption of final amendments to the anti-tying provisions of Regulation Y (Bank Holding Companies and Change in Bank Control). The Board also proposed for public comment an additional amendment to the anti-tying provisions. Section 106(b) of the Bank Holding Company Act Amendments of 1970 generally prohibits a bank from tying its own products, or tying its products to those of an affiliate. The Board’s Regulation Y applies section 106 to bank holding companies and their nonbank subsidiaries as if they were banks. A statutory exception to these requirements allows a bank to discount any product or service on condition that a customer obtain a traditional bank product (a loan, discount, deposit, or trust service) from that bank. The final rule extends this statutory exception to allow bank holding company affiliates, bank and nonbank, to offer package discounts on traditional bank products. The final rule also permits bank holding company affiliates to offer a discount on securities brokerage services on condition that a customer obtain a traditional bank product from itself or from an affiliate. The final rule becomes effective September 2, 1994. The proposed rule would permit a bank holding company or its nonbank subsidiary to offer a discount on its products on condition that a customer obtain any other product from that company or subsidiary or from any of its nonbank affiliates. This exception would apply only when none of the packaged products is being offered by a bank. Comments on the proposed rule are due September 17, 1994. Printed on the following pages is the text of the proposal, as published in the Federal R egister of August 4. Comments thereon should be submitted by September 17, 1994, and may be sent to the Board, as indicated in the notice, or to our Banking Applications Department. In addition, enclosed is the text of final amendments, effective September 2, 1994, to the Board’s Regulation Y (Bank Holding Companies and Change in Bank Control) that would enable bank holding company affiliates to offer package discounts on traditional bank products as well as offer a discount on securities brokerage services under certain conditions. Questions regarding this matter may be directed to Jay B. Bernstein, Staff Director, Domestic Banking Applications Division (Tel. No. 212-720-5861). W il l ia m J. M cD o n o u g h , President. Federal Register / Vol. 59, No. 149 / Thursday, August 4, 1994 / Proposed Rules 39709 or service from that company or subsidiary or from any of its nonbank affiliates, provided that all products offered in the package arrangement are separately available for purchase. This exception would not apply w hen any product in the arrangement is offered by a bank. The board believes that this will increase the efficiency with w hich banking organizations can deliver banking services. DATES: Comments must be submitted on or before September 17,1994. ADDRESSES: Comments should refer to Docket No. R-0843, and may be mailed to William W. Wiles, Secretary, Board of Governors of the Federal Reserve System, 20th Street and Constitution Avenue, N.W., Washington, D.C. 20551. Comments also may be delivered to room B-2222 of the Eccles Building between 8:45 a.m. and 5:15 p.m. weekdays, or to the guard station in the Eccles Building courtyard on 20th Street, N.W. (between Constitution Avenue and C Street) at any time. Comments may be inspected in room , MP-500 between 9:00 a.m. and 5:00 p.m. weekdays, except as provided in 12 CFR 261.8 of the Board’s rules regarding availability of information. FOR FURTHER INFORMATION CONTACT: Robert deV. Frierson, Assistant General Counsel (202/452-3711); Gregory A. Baer, Managing Senior Counsel (202/ 452-3236), or David S. Simon, Attorney (202/452-3611), Legal Division; or Anthony Cymak, Economist, (202/4522917), Division of Research and Statistics, Board of Governors of the Federal Reserve System. For the hearing impaired only, Telecommunication Device for the Deaf (TDD), Dorothea Thompson (202/452-3544). SUPPLEMENTARY INFORMATION: FEDERAL RESERVE SYSTEM 12CFR Part 225 [Regulation Y; Docket No. R-084Q] Revisions Regarding Tying Restrictions Board of Governors of the Federal Reserve System. ACTION: Notice o f proposed rulemaking. AGENCY: The Board is seeking public comment on a proposed am endment to the anti-tying provisions of Regulation Y. The proposed am endment would permit a bank holding company or its nonbank subsidiary to discount any of its products or services on condition that a customer obtain another product Background Section 106(b) of the Bank Holding Company Act Amendments of 1970 (12 U.S.C. 1972) generally prohibits a bank from tying a product or service to another product or service offered by the bank or by any of its affiliates.1 In 1971, the Board applied these tying restrictions to bank holding companies and their nonbank subsidiaries as if they were banks. 12 CFR 225.4(d)(1); 36 FR 10777, 10778 (1971). On March 11,1994, the Board requested public comment on proposed SUMMARY: 1 A prohibited tie-in occurs if a bank: (l) varies the consideration for a product or service (the “tying product”) on the condition that the customer obtain some additional product or service (the "tied product”) from the bank or from any of its affiliates; or (2) as a condition for providing a customer a product or service, requires the customer to purchase another product or service trom the bank or from any of its affiliates. W 39710 p Federal Register / Vol. 59, No. 149 / Thursday, August 4, 1994 / Proposed Rules amendments to Regulation Y, including an extension of the so-called traditional bank product exception of section 106 to package arrangements w ith affiliates. 59 F R 12202 (March 16,1994). In addition to comments on the proposed rule, w hich is being m ade final in a separate docum ent published elsewhere in this issue of the Federal Register, the Board received various requests for interpretation or extension of regulatory exceptions to the tying restrictions imposed by section 106 and Regulation Y. hi particular, com m enters urged the Board to reconsider its extension of the tying restrictions of section 106 to bank holding companies and their nonbank subsidiaries. Proposed Amendments After considering those requests, the Board has decided to propose an am endm ent to its anti-tying regulation to conform it more closely to section 106 and its focus on tying by banks. Under the proposed rule, bank holding companies and their nonbanking subsidiaries would be perm itted to offer discounts on packaged products when: (1) Both the tying and tied p roducts2 are offered by bank holding com panies or their nonbanking subsidiaries—in other words, where no affiliated bank is involved in the arrangement; and (2) both the tying and tied products are separately available.3 In cases that do not qualify for this (or some other) exception, the general restrictions of section 106 and Regulation Y would contin u elo apply; for exam ple, if the package arrangement involved a product offered by an affiliated bank, the exception w ould not apply and the nonbanking subsidiary could only offer discount package arrangements involving exclusively traditional bank products or securities brokerage services, under exceptions recently adopted by the Board and to take effect in thirty days. The antitrust laws also would continue to apply in all cases. The Board believes that the proposed exception is consistent w ith the terms and purposes of section 106, is justified by the competitive environm ent in which nonbanking subsidiaries generally operate, and is potentially beneficial both to banking organizations and consumers. 2 The “tying” product is the product whose consideration is being varied or whose availability is being conditioned. The “tied” product is the product that must be purchased in order to receive a discount on the tying product or become eligible to purchase the tying product. 3 The Board recognizes that requiring the products to be separately available effectively requires that the exception be limited to discounting, and vice versa, but is proposing both conditions in order to avoid any ambiguity. & Consistency With Section 106 By its terms, section 106 applies only when a bank offers the tying product— that is, when a bank is varying the consideration or conditioning the availability of a product in order to create an incentive for the customer to purchase another product from the bank or an affiliate. This coverage was consistent with the stated purpose of section 106: To prevent banks from using their market power over certain products to gain an unfair competitive advantage in other products. See, e.g„ S. Rep. No. 1084, 91st Cong., 2d Sess., 16 (1970) (section 106 was “intended to provide specific statutory assurance that the use of the economic power of a bank will not lead to a lessening of competition or unfair com petitive practices”). The proposed exception would apply only when nonbanks are offering the packaged products. Such arrangements are not covered by the terms of section 106; nor do they raise the specific concerns that section 106 was intended to address. Consistency With Regulation Y The tying restrictions of section 106 were imposed by the Bank Holding Company Act Am endm ents of 1970 in conjunction w ith an extension of new nonbanking powers to bank holding companies and their nonbank subsidiaries. The potential for anticompetitive behavior by such subsidiaries—w hich were then uncommon—was uncertain pending im plementation of the Act, and the Board therefore adopted a prophylactic rule in applying the restrictions of section 106 to bank holding companies and their nonbank subsidiaries. Much has changed, however, since adoption of that rule. Competition in most financial markets has increased substantially since 1971, and through its experience in the supervision of nonbank subsidiaries of bank holding companies, the Board has been able to assess the role of nonbanking subsidiaries-in those markets. The Board believes that neither bank holding companies nor their nonbanking subsidiaries generally appear to possess sufficient market power in the products that they offer to im pair competition. For example, the “laundry list” activities in which bank holding companies and their nonbanking subsidiaries are perm itted to engage are generally conducted in com petitive national or regional markets that are characterized by large numbers of actual or potential competitors and low barriers to entry.4 In such markets, the potential for a market participant to gain a competitive advantage through tying is substantially reduced. Moreover, if the Board’s proposal were adopted, ties involving bank holding companies and their nonbanking subsidiaries would, as noted, continue to be restricted by the federal antitrust laws (primarily the Clayton and Sherman Acts)—the same restrictions that bind their competitors. In addition, section 106 w ould continue to restrict tying by banks, and the Board w ould continue to apply special restrictions to tying by a nonbank when the tied product is offered by an affiliated bank. As a final protection, the Board w ould retain the authority to term inate or modify any exception that resulted in anticompetitive practices. Furthermore, the Board is proposing to rescind its special restrictions on tying between nonbanks only where the products are separately available and a discount is being offered.5 These conditions prevent the conditioning of the availability of one product on the purchase of another and allow consumers to compare prices. The Board recognizes that to the extent that the market for products offered by bank holding companies and their nonbanking subsidiaries is competitive, these conditions should not be strictly necessary. The Board seeks comment on w hether these conditions should be retained as a precaution against any anti-competitive practices. The Board also seeks comment on a clarification to the requirem ent of separate availability, applicable to all the regulatory exceptions, that w ould provide that products must be separately available “at competitive prices.” This amendment would clarify that if a product is available outside a package arrangement only at a non-competitive price, it is not truly separately available. Costs of Tying Restrictions The special tying restrictions imposed on nonbank subsidiaries of bank holding companies not only appear to be unnecessary to prevent those companies from gaining an unfair competitive advantage, but also place those companies at a competitive disadvantage with other providers of the same products and services. As a result of Regulation Y’s current prohibition, a 4 T h e “ la u n d ry lis t ” a c tiv itie s are s p e c ifie d by reg u la tio n . S e e 12 CFR 2 2 5 .2 5 . 5 Under antitrust law, concerns over tying arrangements are substantially reduced where the buyer is free to take either product by itself, even though the seller may also offer the two items as a u n it at a s in g le p rice. N o r th e r n P a c ific /?. Co. v. U n ite s S ta te s. 3 5 6 U .S. 1, 6 n .4 (19 5 8 ). m u Federal Register / Vol. 59, No. 149 / Thursday, August 4, 1994 / Proposed Rules nonbanking company is generally prohibited from offering discounted packages of its own products or discounted packages that in c lu d e its own products and those of other affiliated nonbanking companies, Their competitors who are not affiliated with banks are not similarly constrained. Several commenters in the Board’s recent rulemaking noted that brokerage firms and other nonbank com petitors are offering the types of discounts currently prohibited by Regulation Y, which are not generally illegal for purposes of the federal antitrust laws. The inability of nonbanks in a holding company structure to offer discounts not only dim inishes their com petitiveness but also deprives their custom ers of an opportunity to receive discounts. The Board believes that under the proposed rule, customers w ould be presented with more choices and potentially lower costs. List of Subjects in 12 CFR P art 225 Congressional Intent § 225.7 The Board notes that this proposed treatm ent of tying by nonbanking subsidiaries is consistent w ith recent Congressional action in the tying area. In applying anti-tying restrictions to savings associations in the Garn-St. Germain Depository Institutions Act, Public Law No. 97-320, section 331, 96 Stat. 1496, Congress closely paralleled section 106 in applying the restriction only w hen the tying product was offered by the savings association. An extension of the restrictions to non-savings association affiliates of the type adopted by the Board was neither included by Congress nor subsequently adopted by the Office of Thrift Supervision. Other Issues Finally, the Board is proposing to amend Regulation Y to clarify that the Board’s retained authority to revoke an exception that is resulting in anti competitive practices includes authority to halt such practices at an individual institution. Paperwork Reduction Act No collections of information pursuant to section 3504(h) of the Paperwork Reduction Act (44 U.S.C. 3501 et seq.) are contained in the proposed rule. Regulatory Flexibility Act It is hereby certified that this proposed rule, if adopted as a final rule, will not have a significant economic impact on a substantial num ber of small entities that w ould be subject to the regulation. Administrative practice and procedure, Banks, banking, Holding companies, Reporting and recordkeeping requirements, Securities. For the reasons set forth in the preamble,-the Board proposes to amend 12 CFR Part 225 as set forth below: PART 225—BANK HOLDING COMPANIES AND CHANGE IN BANK CONTROL (REGULATION Y) 1. The authority citation for 12 CFR part 225 continues to read as follows: Authority: 12 U.S.C. 1817(j)(13), 1818, 1831i, 1 8 3 1 p - l, 1843(c)(8), 1844(b), 1972(1), 3106, 3108, 3907, 3909, 3310, and 3 3 3 1 3351. 2. In section 225.7, a new paragraph (b)(3) is added and paragraph (c) is revised to read as follows: it it Tytng Restrictions. it it it (b) * * * (3) Discounts on tie-in arrangements not involving banks. A bank holding company or any nonbank subsidiary thereof may vary the consideration for any extension of credit, lease or sale of property of any kind, or service, on the condition or requirement that the customer obtain some additional credit, property, or service from itself or a nonbank affiliate, provided that all products and services offered in the arrangement also are separately available for purchase by the customer. (c) Limitations on exceptions. (1) The exceptions of this section shall apply only if all products involved in the tying arrangement are separately available for purchase at competitive prices. (2) Any exception granted pursuant to this section shall term inate upon a finding by the Board that the arrangement is resulting in anti competitive practices. The eligibility of a bank holding company or bank or nonbank subsidiary thereof to operate under any exception granted pursuant to this section shall terminate upon a finding by the Board that its exercise of this authority is resulting in anti competitive practices. it it it it it By order o f the Board o f G overnors of. the Federal R eserve S ystem , July 2 7 ,1 9 9 4 . William W. Wiles, Secretary of the Board. 1FR Doc. 9 4 -1 8 7 2 3 F iled 8 - 3 -9 4 ; 8:45 am] BILLING CODE 6210-01-P c- 39711 Board of Governors of the Federal Reserve System AM ENDM ENTS TO REGULATION Y (Effective September 2, 1994) FEDERAL RESERVE SYSTEM 12CFR Part 225 [Regulation Y; Docket No. R -0832] Revisions Regarding Tying Restrictions AGENCY: Board of Governors of the Federal Reserve System. ACTION: Final rule. The Board is adopting a Final rule am ending the anti-tying provision of Regulation Y to perm it a bank or a bank holding com pany to offer a discount on a loan, discount, deposit, or trust service (a “traditional bank product”), or on securities brokerage services, on condition that the customer obtain a traditional bank product from an affiliate. The Board believes that this will increase the efficiency w ith w hich organizations can deliver banking sendees. EFFECTIVE DATE: Septem ber 2, 1994. SUMMARY: FOR FURTHER INFORMATION CONTACT: Robert deV. Frierson, Assistant General Counsel (202/452-3711); Gregory A. Baer, Managing Senior Counsel (202/ 452-3236), or David S. Simon, Attorney (202/452-3611), Legal Division; or Anthony Cyrnak, Economist, (202/4522917), Division of Research and Statistics, Board of Governors of the Federal Reserve System. For the hearing impaired only, Telecom m unication Device for the Deaf (TDD), Dorothea Thom pson (202/452-3544). SUPPLEMENTARY INFORMATION: Background Section 106(b) of the Bank Holding Company Act A m endm ents of 1970 (12 U.S.C. 1972) generally prohibits a bank from tying a product or sendee to another product or service offered by the bank or by any of its affiliates. A prohibited tie occurs if a bank: (1) varies the consideration fora product or sendee (the “tying product”) on the condition that the custom er obtain some additional product or sendee (the “tied p roduct”) from the bank or from any of its affiliates; or (2) as a condition for providing a custom er a product or se n ic e , requires the custom er to purchase another product or se n ic e from the bank or from any of its affiliates. In 1971, the Board applied these tying restrictions to bank holding com panies and their nonbank subsidiaries as if they were banks. 12 C5R 225.4(d)(1). Section 106 contains an exception (the “traditional bank product exception”) perm itting a bank to tie a product to a traditional bank product offered by that bank, but not by any affiliated bank or nonbank.1Thus, for example, the statutory exception perm its a bank to offer a discount on a loan on the condition that a customer m aintain a deposit account at that bank; however, the bank may not offer a discount on a loan on the condition that a custom er m aintain a deposit account at an affiliated bank. On March 11,1994, the Board requested public com m ent on two proposed exceptions to section 106. 59 FR 12,202 (March 16,1994). The first exception w ould extend the statutory traditional bank product exception described above to perm it a bank or bank holding com pany to offer a discount on a traditional bank product to a custom er w ho obtains another traditional bank product from an affiliate. The second proposed exception w ould permit a bank or bank holding company to offer a discount on securities brokerage services to a custom er who obtains a traditional bank product from an affiliate. Section 106 authorizes the Board to permit, by regulation or order, exceptions from its anti-tving provisions where the Board determ ines that an exception will not be contrary to the purposes of the section. G eneral Summary' of Comments The Board received 68 comments on its proposal. These commenters included 31 bank holding companies, 17 hanks, two law firms, five Reserve Banks and seven trade associations. 1 S im ila rly , u n d er th e B o a rd ’s e x te n s io n o f s e c tio n 106 to n o n b a n k s in R eg u la tio n Y, a n on b an k m ay tie a p rod uct to a tra d itio n a l bank prod uct coffered bv itself, but not by an a ffilia te. [E n c. Cir. N o. 1 0 7 2 6 ] Overall, the com m ents supported both parts of the proposed rule. One com m enter generally opposed the proposed am endm ents because it believed that exceptions to section 106 should be provided on a case-by-case basis and not as a general matter through rulemaking, and that by7acting on individual requests, the Board w ould be able to prevent potential anticom petitive effects, especially in small towns. The Board has concluded, however, that the benefits and costs of the proposal may be assessed in the aggregate and that rulemaking is appropriate. T raditional B ank Products The Board is adopting substantially as proposed the extension of the traditional bank product exception in section 106 to cover discount arrangem ents involving an affiliate. In particular, the final rule permits a bank or nonbank to vary the consideration charged for a traditional bank product on the condition that a customer obtain another traditional bank product from an affiliate, provided that each product in the arrangement is separately available for purchase by the customer. The Board believes that the exception is fully consistent w ith the purposes of section 106, will increase the efficiency w ith w hich banking organizations can deliver banking services, and will allow those organizations to provide their custom ers discounts on packages of banking products that include products offered by affiliates. As noted, section 106 contains an exception perm itting a bank to tie a product to a traditional bank product offered by that same bank. The Senate Report accompanying section 106 states that the traditional bank product exception was intended to preserve a custom er’s ability to negotiate the price of m ultiple banking services with the bank on the basis of the custom er’s entire relationship with the bank. S. Rep. No. 1084, 91st Cong., 2d Sess., 1617 (1970). The Board believes that it is consistent with this stated statutory purpose for a bank or bank holding com pany to offer a discount on packages of traditional bank products when one of the com ponent products in the package is offered by an affiliate. Since 1970 and 1971, there has been a substantial increase in the number of affiliates in bank holding company PRINTED IN NEW YORK. FROM FEDERAL REGISTER, VOL. 59. NO. 149. pp. 39677-79 /o * 7 # £ 39678 Federal Register / Vol. 59, No. 149 / Thursday, August 4, 1994 / Rules and Regulations organizations and the extent of specialization of these affiliates, w hich has led to custom ers obtaining traditional bank products from m ultiple affiliates, both bank and nonbank. Adoption of the proposed rule w ill be consistent w ith the purposes of section 106 by allowing a custom er to negotiate the price of m ultiple traditional banking services on the basis of the custom er’s entire relationship w ith a bank holding company organization, as opposed to just a single bank w ithin such an organization. By allowing bank holding com panies to package traditional bank products offered by m ultiple subsidiaries, the exception also will increase the efficiency with w hich bank holding com panies can deliver those products. Several commenters explained that the existing rule had created a disincentive for bank holding com panies to consolidate a given traditional bank product in one affiliate (and thereby lose the exem ption for that activity), as opposed to offering the product through all its subsidiary banks (retaining the exem ption at each bank but forfeiting efficiency gains). Adoption of the proposed exception to section 106 w ill not only perm it bank holding com panies to offer products more efficiently but also will allow their custom ers to benefit. Customers w ill be able to realize cost savings w hen they obtain traditional bank products from two or more subsidiaries of a bank holding company instead of just one. Because the inter-affiliate traditional bank product exception will allow bank holding company affiliates to offer custom ers a more favorable price on packages of banking products, thereby relieving bank holding com panies of a com petitive disadvantage and benefitting their customers, the Board has concluded that the am endm ent is consistent with the purposes of section 106 and should be adopted. Several com m enters requested an expansion of the proposed exception to include inter-affiliate arrangem ents in w hich the tying product is a nontraditional bank product and the tied product is a traditional bank product. The Board has decided not to extend the statutory traditional bank product exception to inter-affiliate tying involving non-traditional bank products at this time. However, in a separate notice, the Board is proposing to am end the tying restrictions of Regulation Y to permit any discount arrangem ent that involves only nonbank affiliates. Discounts on Securities Brokerage Services In December 1993, the Board approved an exemption for a brokerage subsidiary of a bank to offer a discount on brokerage services to its customers who maintain a m inim um balance in an account at the bank or any affiliated bank. First Union Corporation, 80 Federal Reserve Bulletin 166 (1994). The Board concluded that the requested exem ption was consistent w ith the legislative purpose of section 106 (to prevent banks from using their economic power to engage in anticom petitive practices) and the legislative purpose of the Board’s exem ptive authority (to allow appropriate traditional banking practices based on sound economic analysis). In its order, the Board found that the market for retail brokerage services was national in scope and highly competitive, making it unlikely that any of these banks—or any other provider of brokerage services—could exercise sufficient market pow er in brokerage services to im pair com petition in the market for traditional banking services. As part of the order, the Board required that the two products in the arrangement be separately available for purchase by the customer, noting that under antitrust precedent, concerns about tying are substantially reduced w hen the buyer is free to take-either product by itself. The Board is adopting substantially as proposed an am endm ent to Regulation Y making this exemption available to all bank holding companies. This am endm ent will permit any bank or bank holding company to offer a discount on brokerage services if a custom er obtains a traditional bank product from any affiliate. The regulatory exception is conditioned on the brokerage services and traditional bank products offered in the arrangement being separately available for purchase by the customer. Commenters overwhelmingly favored the proposed am endm ent. Commenters stated that the regulatory exception would promote fair com petition with nonbank competitors and would result in cost savings and other benefits to customers. A securities industry association opposed the proposed exception because it believed that the exception w ould increase custom er confusion by reinforcing the false im pression that brokerage services offered by banks are insured by the federal government. However, the recent inter-agency statem ent on retail sales of non-deposit investment products specifies steps that banks should take to prevent confusio including informing customers in writing that the products are not federally insured, are not deposits or other obligations of the institution and are not guaranteed by the institution, and involve investm ent risks includin possible loss of principal. In addition, the statement restricts where an institution may offer non-deposit investm ent products. The Board believes that this statement satisfactorily addresses any possibility of an increase in custom er confusion about coverage of federal deposit insurance where banks offer brokerage services as part of a package arrangement. A few com m enters requested that the Board clarify that “brokerage services” refers to “securities brokerage services” and that securities brokerage services include related incidental services as authorized by Regulation Y. These technical changes are consistent with the intent of the proposed rule, and will be included in the final rule. Some com m enters requested that the Board grant an exception perm itting a bank or a bank holding company to vary the consideration charged for a traditional bank product, such as a deposit service, based on a custom er's purchase of brokerage services—the converse of the proposed exception. The Board believes that this proposal should be evaluated in the context of a specific exem ption request. One such request has been published for comment. Fleet Financial Group, Inc., 59 FR 9,216 (February 25, 1994). A few com m enters sought an interpretation that ties involving m utual funds were either wholly or partially exem pt from section 106, either because m utual funds are not bank holding com pany subsidiaries or because m utual fund products constitute trust services and therefore qualify as traditional bank products. The Board intends to address this issue separately. Some com m enters sought clarification on w hether both proposed exceptions w ere lim ited to cases where the tying product was offered by a bank, or also included cases where the tying product was offered by a bank holding company or its nonbanking subsidiary. The concern arose because the proposed exceptions were phrased only in terms of banks. The Board notes that the language of section 225.4(d)(1) of Regulation Y wrould automatically apply the proposed exceptions for banks to bank holding com panies and their nonbanking subsidiaries, as was intended by the proposed rulemaking. However, the final rule has been am ended to make this coverage explicit Rather than referring to a “bank” S Federal Register / Vol. 59, No. 149 / Thursday, August 4, 1994 / Rules and Regulations offering a traditional bank product or a discount on brokerage services, the rule refers to a “bank holding com pany or bank or nonbank subsidiary thereof.” 3. A new § 225.7 is added to subpart William W. Wiles, Secretary of the'Board. A of part 225 to read as follows: Reorganization of Regulation § 225.7 In a non-substantive change, the Board has restructured the regulation to make it more easily understandable. The regulation has been moved from the section on corporate practices, § 225.4, and established as its own section, § 225.7. The application of section 106 to bank holding com panies and their nonbank subsidiaries is contained in paragraph (a). Paragraph (b) contains exceptions to both section 106 and § 225.7(a), and paragraph (c) contains lim itations on each of those exceptions. Finally, a definition paragraph, § 225.7(d), has been added. In addition, the exception for credit card services previously contained in § 225.4(d)(2) has been removed from the regulation, as all transactions previously excepted under that provision are now excepted under the traditional bank product exception in § 225.7(b)(1). Also, the phrase “ (but no other products)” has been deleted in places where it was superfluous. These changes are not substantive. Paperwork Reduction Act No collections of information pursuant to section 3504(h) of the Paperwork Reduction Act (44 U.S.C. 3501 et seq.) are contained in the proposed rule. Regulatory Flexibility Act It is hereby certified that this final rule will not have a significant econom ic im pact on a substantial num ber cf small entities that w ould be subject to the regulation. List of Subjects in 12 CFR Part 225 A dm inistrative practice and procedure, Banks, banking. Holding com panies, Reporting and recordkeeping requirem ents, Securities. For the reasons set forth in this docum ent, the Board am ends 12 CFR part 225 as set forth below: PART 225— BANK HOLDING COMPANIES AND CHANGE IN BANK CONTROL (REGULATION Y) 1. The authority citation for 12 CFR part 225 continues to read as follows: A u thority: 12 U .S.C. 1817(j)(13), 1818. 1831 i , 1 8 3 1 p -l. 1 8 4 3(c)(8), 1844(b). 1972(1), 3 1 0 6 , 3 1 0 8 . 3 9 0 7 , 3 9 0 9 , 3310. and 3 3 3 1 3351. § 225.4 [Amended] 2. In § 225.4, paragraph (d) is removed and paragraphs (e) through (g) are redesignated as paragraphs (d) through ( f). 39679 B y order o f the Board o f G overnors o f the F ederal R eserve S y stem , July 2 7 ,1 9 9 4 . [FR D oc. 9 4 -1 8 7 2 4 F iled 8 - 3 - 9 4 ; 8:45 am) Tying restrictions. (a) Applicability to nonbanks. A bank holding company and any nonbanking subsidiary conducting an activity authorized under § 225.23 may not in any m anner extend credit, lease or sell property of any kind, provide any service, or fix or vary the consideration for any of these transactions subject to any condition or requirem ent that, if imposed by a bank, w ould constitute an unlawful tie-in arrangement under section 106 of the Bank Holding Companv Act Am endm ents of 1970 (12 U.S.C. 1971, 1972(1)). (b) Exceptions. Subject to the lim itations of paragraph (c) of this section, the Board has adopted the following exceptions to the anti-tying restrictions of section 106 of the Bank Holding Company Act Am endm ents of 1970 and paragraph (a) of this section. (1) Traditional bank products. A bank holding company or any bank or nonbank subsidiary thereof may vary the consideration charged for a traditional bank product on the condition or requirem ent that a customer also obtain a traditional bank product from an affiliate. (2) Securities brokerage sendees. A bank holding com pany or any bank or nonbank subsidiary thereof may vary the consideration charged for securities brokerage services on the condition or requirement that a custom er also obtain a traditional bank product from that bank holding company or bank or nonbank subsidiary, or from any affiliate of such company or subsidiary. (c) Limitations on exceptions. (1) The exceptions of this section shall apply only if all products involved in the tying arrangement are separately available for purchase. (2) Any exception granted pursuant to this section shall term inate upon a finding by the Board that the arrangement is resulting in anticom petitive practices. (d) Definitions. For purposes of this section: (1) Traditional bank product m eans a loan, discount, deposit, or trust sendee. (2) Affiliate has the meaning given such term in section 2(k) of the Bank Holding Company Act (12 U.S.C. 1841 (k)). (3) Securities brokerage sendees means those activities authorized by the Board pursuant to § 225.25(b)(15). BILUNG CODE 6 2 1 0 -0 1 -P