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FEDERAL

RESERVE BANK

OF NEW

YORK
[circular No. 67531
jejune 23, 1971 J

BANK HOLDING COMPANIES
Proposed Amendments to Regulation Y
To All Banks, and Others Concerned,
in the Second Federal R eserve D istrict:

Following is the text of a statement issued June 16 by the Board of Governors of the
Federal Reserve System:
The Board of Governors of the Federal Reserve System today proposed regulatory
language to implement two provisions of the 1970 amendments to the Bank Holding Com­
pany Act that relate to nonbanking activities and interests in the United States of foreign
bank holding companies and to foreign acquisitions of domestic bank holding companies.
Comments on the proposals, which would implement sections 4(c)(9) and 4(c) (13) of
the Act, should be submitted to the Board no later than July 23.
These sections permit bank holding companies to make acquisitions of nonbanking
interests if the Board determines that, under the circumstances and subject to appropriate
conditions, such acquisitions would not be substantially at variance with the purposes of
the Act and would be in the public interest. Section 4(c)(9) pertains to acquisitions of
companies that do some business in the United States by foreign bank holding companies
that conduct the greater part of their business outside the United States. Section 4(c) (13)
pertains to foreign acquisitions by domestic bank holding companies.
The Board's proposal to implement section 4(c)(9) would, with certain exceptions,
permit a foreign bank holding company that does the greater part of its business outside
the United States to:
1. Engage directly in nonbanking activities outside the United States.
2. Engage directly in nonbanking activities in the United States that are merely
incidental to its activities outside the United States.
3. Acquire companies whose domestic business is merely incidental to their inter­
national or foreign business.
4. Acquire noncontrolling interests in foreign companies which do less than 20 per
cent of their business in the United States.
Under the proposal to implement section 4(c) (13), a domestic bank holding company
would be permitted to acquire, with the Board’ s prior approval, shares of any company in
which an Edge Act corporation may invest. The Edge Act, enacted by Congress in 1919,
authorizes the Board to charter corporations engaged in foreign banking and other
foreign financial operations and to regulate the activities of such corporations. Under
this proposal the Board would retain authority to impose conditions regarding the
operations of foreign subsidiaries of domestic bank holding companies sim ilar to those
conditions that it has customarily imposed regarding the operations of foreign sub­
sidiaries of Edge Act corporations.
Printed on the reverse side is the text of the proposed amendments. Comments thereon
should be submitted by July 23 and may be sent to our Bank Applications Department. Addi­
tional copies of this circular will be furnished upon request.




A lfr e d Hayes,
P re sid e n t.
(Over)

( Reg. Y)
SANK HOLDING COMPANIES
Nonbcmki ng A c t i v i t i e s and I nt er est s

By Act of Congress approved December 31, 1970
(Public Law 91-607) the Bank Holding Company Act
was expanded to cover companies that control only one
bank. In conjunction with that expansion Congress
amended section 4(c)(9) and added section 4(c) (13) of
that Act to authorize the Board to exempt activities
and investments of foreign bank holding companies
and foreign investments of domestic bank holding
companies "if the Board by regulation or order de­
termines that, under the circumstances and subject
to the conditions set forth in the regulation or order,
the exemption would not be substantially at variance
with the purposes of this Act and would be in the
public interest."
The Board proposes to add a new paragraph (f)
to section 222.4 of Regulation Y to implement its
authority under section 4(c)(9). Under the proposal a
foreign-based bank holding company could (1) engage
directly in nonbanking activities outside the United
States, (2) engage directly in nonbanking activities in
the United States that are merely incidental to its
activities outside the United States, (3) invest in
companies that do no business in the United States
except as an incident to their international or foreign
business, and (4) own noncontrolling interests in
foreign companies more than 80 per cent of whose
consolidated assets and revenues are located and de­
rived outside the United States, other than companies
engaged in the business of underwriting, selling or
distributing securities in the United States. A foreignbased bank holding company may seek the Board's
determination whether other activities or investments
not enumerated in the Regulation might, under the
circumstances of a particular application and subject
to appropriate conditions, be eligible for exemption
under the standards prescribed in section 4(c)(9).
This proposal reflects the Board's view that the
purposes of the Act can be achieved without undue
interference with foreign banking operations in other
countries that are likely to have only incidental effects
in the United States. The Board considers it unlikely
that the foreign banking activities that it proposes to
exempt will have adverse consequences in the United
States of the type that Congress intended to prevent
through section 4 of the Act.
The Board also proposes to add a new paragraph
(g) to section 222.4 of Regulation Y to implement its
authority under section 4(c) (13). Under this proposal
a domestic bank holding company could, with prior
consent of the Board, invest in any company in which
an Edge Act corporation may invest. The procedures
under which the Board will grant its consent would be
the same as those set forth in § 211.8 of Regulation
K. The Board believes that it is both consistent with
the purposes of the Act and in the public interest that
the foreign operations of domestic bank holding com­
panies be subject to the Board's surveillance in the
same manner as the foreign operations of member
banks and Edge corporations.
To aid in the consideration of this matter by the
Board, interested persons are invited to submit
relevant data, views, or arguments. Any such material
should be submitted in writing to the Secretary,
Board of Governors of the Federal Reserve System,
Washington, D. C. 20551, to be received not later than
July 23, 1971. Such material will be made available
for inspection and copying upon request, except as



provided in § 261.6(a) of the Board's Rules Regarding
Availability of Information.
The proposed new paragraphs of Regulat on Y read
as follows:
§ 222.4 Nonbanking activities and interests.

*

*

*

*

*

(f) Foreign bank holding companies. (1) A bank
holding company, organized under the laws of aforeign
country, more than half of whose consolidated assets
and revenues are located and derived outside the
United States may:
(1) engage in direct activities of any kind outside
the United States,
(ii) engage in direct activities in the United States
that are incidental to its activities outside the United
States,
(iii) own or control voting shares of any company
(other than a bank holding company) that is not en­
gaged, directly or indirectly, in any activities in the
United States except as shall be incidental to the
international or foreign business of such company, and
(iv) own or control voting shares of any company
organized under the laws of a foreign country (other
than a bank holding company) if (A) more than 80
per cent of such company's consolidated assets and
revenues are located and derived outside the United
States, (B) such company is not a subsidiary of such
bank holding company, and (C) such company does
not engage in the business of underwriting, selling,
or distributing securities in the United States.
(2) A bank holding company, organized under the
laws of a foreign country, that is of the opinion that
other activities or investments may, in particular
circum stances, meet the conditions for an exemption
under section 4(c)(9) of the Act may apply to the Board
for such a determination by submitting to the Re­
serve Bank of the district in which its banking opera­
tions in the United States are principally conducted a
letter setting forth the basis for that opinion.
(3) A bank holding company shall inform the
Board through such Reserve Bank within 30 days after
the close of each quarter with respect to the acquisi­
tion during that quarter pursuant to an exemption
under this paragraph (f) of voting shares of any com­
panies that do any business whatsoever in the United
States, including the following information concerning
any company whose voting shares it acquired for the
first time (unless previously furnished): (1) Recent
balance sheet and income statement, (2) brief descrip­
tions of the company's business (including full informa­
tion concerning any business transacted in the United
States) and the shares acquired, (3) lists of directors
and principal officers (with address and principal
business affiliation of each) and of all shareholders
(known to the issuing company) holding 10 per cent or
more of any class of the company's voting shares
(and the amount held by each).
(g) Foreign activities of domestic bank holding
companies. Any bank holding company may own or
control voting shares of any company in which a com­
pany organized under section 25(a) of the Federal
Reserve Act (12 U.S. C. 611-631) may invest, provided
that it acquires ownership or control of such shares
with prior consent of the Board in accordance with the
procedures of § 211.8 of this chapter (§ 211.8 of
Regulation K). A bank holding company shall comply
with such conditions as the Board may prescribe with
respect to any such acquisition. It shall also comply
with the conditions in § 211.8 of this chapter regarding
disposition of shares so acquired and shall report on
any acquisition or disposition of shares as therein
provided.