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FEDERAL RESERVE BANK OF N EW YORK f C ircu la r N o . 6 2 9 8 1 L F e b ru a r y 21, 1969 j To All Banks, and Others Concerned, in the Second Federal Reserve D istrict: The following statement was made public February 20 by the Board of Governors of the Federal Reserve System: The Board of Governors of the Federal Reserve System today released the attached statement of prin ciples with respect to amendments to the Bank Holding Company Act. All members o f the Board joined in the statement, with two exceptions. Governor Brimmer was in agree ment with the statement except as to one point, and an expression of his views on that point is attached. Governor Robertson did not join in the statement, and an expression of his views is also attached. Printed below are copies of the Board’s statement and the views of Governors Brimmer and Robertson. A lfred H ayes, President. Statement of Principles by the Board of Governors of the Federal Reserve System With Respect to Amendments to the Bank Holding Company Act For several months the Board o f Governors has been engaged in an intensive study of the problems pre sented by the recent trend in the formation of onebank holding companies. The B oard’s deliberations have led it to adopt the following statement of prin ciples with respect to possible amendments to the Bank Holding Company Act of 1956: 1. The Board believes that it is essential that onebank holding companies be included within the pur view of the Act. 2. The Board considers that under present circum stances the law should not permit a bank to become a part o f a conglomerate organization. The unique characteristics of banks led the Congress in 1933 to separate banking from nonbanking businesses, and in 1956 to reinforce that policy by limiting the activities of multibank holding companies to the management and control of banks and closely related activities. The Board believes that this separation should be maintained. It also believes, however, that, consistent with con tinued growth and development o f a dynamic and in creasingly complex economy, banks should be granted greater freedom to innovate new services and proce dures, either directly, or through wholly-owned sub sidiaries, or through affiliates in a holding company system, subject to administrative approval of entry and acquisitions to prevent activities inconsistent with the purpose of the Act. 3. Certain kinds of activities in holding company systems are in the public interest if accompanied by proper safeguards against perverse consequences. In determining whether a particular activity by bank holding company organizations is consistent with the public interest, consideration must be given to whether the benefits of such affiliation outweigh the potential dangers at which the separation o f banking from non banking businesses has been directed. Such benefits would include greater convenience to the public, in creased competition, and gains in efficiency fo r ’ the economy generally as well as for the holding company organization. The potential dangers which might re sult from bank affiliation with nonbanking businesses are undue concentration of resources, decreased com petition, conflicts of interest leading to less equality in the availability of credit, and dangers to the sound ness of the nation’s banking business. 4. The Board considers that one-bank holding com panies and multibank holding companies should be afforded equal treatment under the law with respect to bank and nonbank acquisitions or approvals of de novo entry. 5. Bank holding companies should be allowed to enter certain nonbanking areas of activity, specified in statute or agency regulation, which would facilitate broader services for the public. Determinations by the appropriate banking agency would involve an evalua tion of the benefits and dangers of such entry. Unless otherwise provided by law, entry by acquisition, pur (over) chase o f assets, merger, consolidation, or otherwise should be on the basis of considerations similar to the competitive and banking factors contained in the pres ent A ct.1 6. The Board believes that it would be most effec tive for one agency (preferably the Board) to continue to administer the Bank Holding Company Act with respect to the holding companies themselves and with respect to the approval of acquisitions by the holding companies. Just as it believes the present system of a single agency determining the approval of new acquisi tions by holding companies is proper, the Board be lieves that the acquisition of subsidiaries by individual banks should be dispersed among the three bank regu latory agencies. 7. Alternatively, and less desirably, if the Bank Holding Company Act were to be amended so that administrative authority over bank holding companies would be dispersed among the three agencies which now share in the regulation o f banks, dispersion might occur in the following manner: (a) Vest authority over multibank holding com pany acquisitions of banks and of nonbanking activi ties in the Board. (b) Disperse authority over one-bank holding com panies in the three agencies with a requirement that l Because of the risk of undue concentration of resources, an applicant proposing an acquisition involving a relatively large amount of nonbank assets would ordinarily bear a greater bur den o f proving that the acquisition was not contrary to the public interest. A n y expansion of bank holding company activities is predi cated on the assumption that the economy generally will also benefit from the ability o f such institutions to operate more efficiently in performing certain functions. However, it should be recognized that entry into new activities particularly those that are financially related— whether de novo or by acquisition— raises the question of the effect on competition between bank and nonbank institutions. Preserving the viability of such com petition may be of overriding importance. The probability of anticompetitive consequences appears greater in acquisitions of existing concerns than in de novo entry. regulations be jointly promulgated as to permitted nonbank lines of activity and containing guidelines as to acquisitions and mergers which, because of size, or market, or related activities, would be presumed to be opposed to the public interest. These regulations would also be applicable to nonbank acquisitions by multi bank holding companies. 8. Although one-bank holding companies should generally be subject to the Act to the same extent as multibank holding companies, one-bank holding com panies in existence before the recent trend to their formation should be given special consideration. This would mean a qualified exemption for those companies with respect to which the Congress or the agency determines that the combination of bank and nonbank assets does not give rise to any significant extent to the evils at which the Act is directed.2 N ote: This statement of principles is directed to the major issues involved in bringing one-bank holding companies within the coverage of the Bank Holding Company Act. Other amendments to the Act also merit favorable action by Congress. Among these are amendments (1) to bring partnerships within the coverage of the A ct; (2) to broaden the B oard’s authority to determine that a company owns or con trols a bank; (3) to give the Board jurisdiction over mergers where the resulting bank is a subsidiary of a multibank holding company; (4) to prohibit a bank from voting bank stock held in trust unless it has voting instructions from the beneficiary; and (5) pro hibit tie-in arrangements. 2 There are various possible forms such an exemption might take: ( 1 ) exempting one-bank holding companies with rela tively small bank and nonbank assets; (2 ) exempting one-bank holding companies in existence before the recent trend began (generally accepted as July 1, 1968) as long as they conduct no activities other than those conducted on the cut-off date and do not acquire (by purchase o f assets, merger, consolidation, or otherwise) any interest in any other enterprise; (3 ) exempt ing such companies irrespective of their activities as long as they make no acquisitions; and (4 ) exempting such companies irrespective of their activities or acquisitions but require agency approval of any acquisition. S t a t e m e n t op V ie w s o f G o v e r n o r A n d r e w F . B r im m e r Governor Brimmer is in agreement with all elements of the B oard’s statement of principles regarding bank holding companies except for item 7 regarding dis persal of authority among the three Federal bank regulatory agencies. He believes as a matter of princi ple that the administrative authority under the Bank Holding Company Act should be vested in a single agency. S t a t e m e n t of V ie w s of G o ver n or Governor Robertson did not join in this statement. His views on the major issues involved are: (1) onebank holding companies should be brought within the coverage of the Bank Holding Company Act without a “ grandfather clause” (although small onejbank holding companies might be given special considera tion) ; and (2) some expansion of the powers of banks J. L. R obertson through subsidiary corporations or through collateral affiliates in a holding company system is justified; but (3) the most important consideration is that the admin istration o f the Holding Company Act should be vested in one Federal agency to assure uniformity in its ap plication, which is essential from the standpoints of the banking community, the Government, and the public.
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