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FED ER A L RESERVE BANK O F N E W YORK C ircu la r N o. 6826 I O c to b e r 28, 1971 I [ B A N K HOLDING COMPANIES —Hearings on Certain Bank-Related Activities of B a n k Holding C o mpanies —Proposed A m e n d m e n t to Regulation Y To All Banks, and Others Concerned, in the Second Federal R eserv e D istrict: Following is the text of a statement issued October 26 by the B o a r d of Governors of the Federal Reserve System: The Bo a r d of Governors of the Federal Reserve System today scheduled three hear ings during N o v e m b e r on questions relating to the types of bank-related acquisitions that m a y be m a d e by bank holding companies. The Boa r d also proposed a regulatory a m e n d m e n t to clarify the status of one-bank holding companies that fall within one or m o r e of the various grandfather clauses of the 1970 a m e n d m e n t s to the B a n k Holding C o m p a n y Act. C o m m e n t s on this proposal should be received by D e c e m b e r 1, 1971. In general, the proposed a m e n d m e n t to Regulation Y would provide that any grand fathered c o m p a n y which acquired a second bank would have two years f r o m that date to dispose of any activities not closely related to banking. This time period would be shorter if the company*s right to continue the activities expired sooner under the grandfather clause. U n d e r the grandfather clause, s o m e companies that controlled one bank on D e c e m b e r 31, 1970, are given 10 years within which to divest nonbanking activities; in other cases no divestiture is required; and in a few cases exemptions f r o m divestiture m a y be granted by the Board. The B o a r d set the following schedule of hearing dates on other bank holding c o m p a n y questions: 1. N o v e m b e r 8 on whether limits should be placed on the size, geographic area and types of activities of already established mortgage companies that m a y be acquired by bank holding companies. The B o a r d has seven applications of this type under considera tion. It also expects that the hearing will enable it to adopt simplified procedures for acquisitions of mortgage companies w h e r e public interest factors are favorable. The hearing will be conducted by available m e m b e r s of the B o a r d in the B o ard R o o m of the Federal Reserve Building, 20th Street and Constitution Avenue. 2. N o v e m b e r 12 on an application by First National Factors, a subsidiary of First National Boston Corporation, to acquire certain assets of C r o m p t o n - R i c h m o n d Factors, N e w York. Competitive aspects of the factoring industry itself as they relate to bank holding companies will also be discussed at this presentation which will be in the B o a r d Room. 3. N o v e m b e r 12 on the Board's proposal, announced August 17, to permit bank holding companies to serve as investment advisers to mutual funds. This presentation will begin at 10:00 a.m. in R o o m 1202. The texts of the hearing notices and of the proposed a m e n d m e n t to Regulation Y are printed below. C o m m e n t s on the proposed a m e n d m e n t should be submitted by D e c e m b e r 1 and m a y be sent to our B a n k Applications Department. Alfred Hayes, President. (Reg. Y) BANK H O LD IN G C O M P A N IE S Notices of Hearings available m e m b e r s of the B o a r d in the Board R o o m of its building at 20th Street and C o n stitution Avenue, Washington, D.C., on N o v e m b e r 8, 1971. Interested persons are in vited to participate, but they need not par ticipate by presenting material orally at the hearing to have their views considered. All views expressed in written c o m m e n t s on the matter that are received before N o v e m b e r 23, 1971, will be given consideration. Such material will be m a d e available for in spection and copying upon request, except as provided in §261.6(a) of the B o a r d ’ s Rules Regarding Availability of Information. Besides assisting the B o a r d in its de termination of pending applications, the Board expects that the hearing will enable it to adopt simplified procedures for acquisition of mortgage companies w here the balance of the public interest factors the B o a rd is re quired to consider will usually be favorable. It also expects that the hearing will enable it to indicate what types of proposed ac quisitions will not be accepted and those that will be considered only if the applicant (a) agrees that certain activities will be dis continued promptly upon acquisition of the c o m p a n y involved or (b) demonstrates that the anticompetitive or other adverse effects of the proposed transaction are clearly out weighed in the public interest by greater convenience, gains in efficiency, or other benefits to the public. Persons interested in participating in the hearing by presenting material orally should inform the Secretary of the B o a r d in writing not later than N o v e m b e r 1,1971. Each person admitted as a party to the proceeding will be given up to 30 minutes to present his views. T h e B o a r d asks that persons w h o have applications under consideration by the Board submit responses, either orally at the hearing or in writing by N o v e m b e r 23, to the following: (1) W h a t services are n o w provided by the mortgage c o m p a n y that Applicant p r o poses to acquire? T o what extent are these various services offered separately to cus tomers and to what extent are they packaged? (For example, should construction financing and the perm a n e n t financing of n e w properties be considered separate services or are these two services generally offered to customers Noti ce of Hearing Regarding Public Interest Considerations in Acquisition by Holding Companies of Certain Mortgage Companies and P o ss ib le Rule Making The B o a r d has under consideration sev eral applications by bank holding companies to acquire companies engaged in the business of extending credit secured by real estate and buying, selling, and servicing mortgages (mortgage companies). 1/ T he B o a r d has previously determined that this activity is closely related to the business of banking (36 F.R. 10777). Under the B o a r d ’ s Regulation Y, bank holding c o m panies m a y engage in this activity de novo without filing an application with the Board. B a n k holding companies m a y engage in this activity through the acquisition of a going concern only upon filing an application and following a determination by the B o a r d that consummation of the proposed acquisition will be in the public interest, giving con sideration to the relevant factors specified in section 4(c)(8) of the B a n k Holding C o m p a n y Act. The differentiation between de novo entry and acquisition of a going concern is justified because of the increase in c o m petition by a n e w entrant into the market. The applications pending before the B o a r d suggest the need to explore the question whether the public interest requires the imposition of limitations on the size, geo graphic area, and type of activities of goingconcern mortgage companies that m a y be acquired by bank holding companies. They also raise the question whether certain types of acquisitions of such companies should be permissible on the s a m e basis as de novo entry. The B o a r d has decided to explore these questions at a hearing to be conducted by JJ A pplications as to which notice has either been published o r sent fo r publication in the F ederal R egister are: (1) BTNB C orp., Birm ingham , A la., to acquire Cobbs, Allen & Hall M ortgage C o., Birm ingham (36 F.R . 14357); (2) F irst Union National B ancorp., Charlotte, N.C., to acquire R eid-M cG ee & Co., Jackson, M iss. (36 F.R. 14358); (3) F irst Chicago Corp. to acquire I. J. Markin & C o., Chicago (36 F.R. 14679); (4) C rock er National C orp., San F ran cisco, to acquire Ralph C. Sutro C o., Los Angeles (36 F.R. 17897); (5) Central National Chicago C orp., to acquire Union Realty M ortgage C o., Chicago (36 F.R . 18438); (6) U.S. Bancorp., Portland, Oregon, to acquire Securities Inter Mountain, Portland; and (7) Marine Bancorporation, Seattle, to retain Coast M ortgage C o., Seattle. -2 - as a package?) Which, if any, of the services performed by the mortgage c o m p a n y are n o w offered by the holding c o m p a n y or its sub sidiaries? T o what extent would existing competition in the markets served be reduced or enhanced by the proposed acquisition? (2) W h a t are the expected advantages to the holding c o m p a n y f r o m this acquisition? H o w do these advantages differ f r o m those that could be achieved by organizing a n e w mortgage banking subsidiary? (3) W h a t public benefits can be expected f r o m the proposed acquisition? In particular, explain how, if at all, greater efficiencies, greater convenience, i mproved service or lower charges would result. (4) Does the proposed mortgage c o m p a n y subsidiary engage in any activities that have not been designated by the B o a r d as being closely related to banking? T o what extent, if any, should activities such as insurance, construction, and real estate development be regarded as incidental activities necessary to carry on the business of the mortgage c o m pany? If activities have not been designated by the B o a r d as being closely related to banking, what would be the effect of ceasing to engage in those activities? Other interested persons are invited to submit responses to the foregoing questions as they apply to the particular applications under consideration or generally. Such p e r sons, as well as persons w h o have applica tions under consideration, m a y also wish to express their views on the following: (a) W h a t are the geographic markets corresponding to the various services offered by mortgage banking companies? A r e they national, regional or local? A r e small build ers and developers limited to sources of mortgage financing within their local areas? (b) In obtaining their financing, to what extent are small mortgage companies limited to local c o m mercia l banks? (c) T o what extent can an independent comm e r c i a l bank continue its business re lationships with a mortgage c o m p a n y that b e c o m e s affiliated with a competing c o mmercial bank? T o what extent can an independent mortgage c o m p a n y continue to look to a bank holding c o m p a n y for its source of credit after that holding c o m p a n y has acquired a competing mortgage c o m p a n y ? (d) A r e there reasons to believe that acquisitions of mortgage companies by bank holding companies would foster a concentra tion of economic resources that would be detrimental to the public interest? (e) W h a t limitations, if any, should apply to a holding c o m p a n y ’ s investment in m o r t gage companies to protect against unfair competition, conflicts of interests, or unsound banking practices, including the soundness of the holding c o m p a n y itself as well as its subsidiary banks? Proposed Acquisition of Crompton-Richmond C o ., Inc. Factors First National Boston Corporation, B o s ton, Massachusetts, a bank holding company, has applied, pursuant to section 4(c)(8) of the B a n k Holding C o m p a n y Act (12 U.S.C. 1843 (c)(8)) and §222.4(b)(2) of the B o a r d ’ s Regula tion Y, for permission to acquire f r o m C r o m p t o n - R i c h m o n d Co., Inc. Factors, N e w York, N e w York, 92 factoring contracts and approximately $8 million in loans receivable. Notice of the application w a s published in the Boston Globe on September 2, 1971, in the N e w Y o r k T i m e s on September 2, 1971, and in the Atlanta Constitution on September 4, 1971. T h e application m a y be inspected at the offices of the B oard of Governors or at the Federal Reserve B a n k of Boston. The proposed subsidiary would engage in the business of a factoring company. Such activity has been specified by the B o a r d in §222.4(a) of Regulation Y as permissible for bank holding companies, subject to B oard approval of individual proposals in accord ance with the procedures of §222.4(b). T h e application suggests the need to explore the question whether the public inter est requires the imposition of limitations on the size of going-concern factoring companies that m a y be acquired by bank holding c o m panies. It also raises the question of the extent to which, if any, a bank holding c o m pany that engages in the factoring business should be permitted to expand that business through acquisition of a going concern. The B o a r d has decided to explore these questions at a hearing to be conducted by available m e m b e r s of the B o a r d in the B oard R o o m of its building at 20th Street and Constitution Avenue, Washington, D.C., on N o v e m b e r 12, 1971. Interested persons are invited to participate, 'but they need not participate by presenting material orally at the hearing to have their views considered. All views expressed in written c o m m e n t s on the matter that are received before N o v e m b e r 26, 1971, will be given consideration. Such -3 - views: (1) The proposed a m e n d m e n t would permit bank holding companies to acquire companies engaged in the issuance, sale and distribution of securities within the meaning of the Glass-Steagall Act (48 Stat. 162); (2) the proposed a m e n d m e n t involves a violation of the Glass-Steagall Act even w h e n applied to an investment adviser subsidiary whose sole function is to provide investment advice; (3) the proposed a m e n d m e n t would require a finding violative of the intent of Congress in enacting the B a n k Holding C o m p a n y Act A m e n d m e n t s of 1970. The ICI has asked for a hearing on this matter and, pursuant to such request, the B o a r d has directed that such a hearing be held in R o o m 1202 of its building at 20th Street and Constitution Ave, N.W., W a s h i n g ton, D.C., on N o v e m b e r 12, 1971, beginning at 10 o ’ clock a.m. T h o m a s J. O'Connell, General Counsel to the Board, and Frederic Solomon, Director of the Board's Division of Supervision and Regulation, have been desig nated by the B o a r d to preside at such hearing. Interested persons are invited to partic ipate by presenting their views on all issues raised by the pending proposal and by the ICI's m e m o r a n d u m of law. That m e m o r a n dum, along with all other c o m m e n t s submitted on the pending proposal, are available for inspection and copying in R o o m 1020 of the Board's building. Interested persons need not participate in the hearing through oral pre sentation in order to have their views con sidered. All views previously expressed in written c o m m e n t s on the pending proposal are under consideration by the Board. Persons interested in participating in the hearing by presenting material orally should inform the Secretary of the B o a r d in writing not later than N o v e m b e r 1,1971. Each person admitted as a party to the proceeding will be given up to 30 minutes to present his views. Anyo n e wishing to submit written c o m m ents on issues raised at the hearing m a y do so at any time before the close of business N o v e m b e r 26, 1971. material will be m a d e available for inspec tion and copying upon request, except as provided in §j261.6(a) of the Board's Rules Regarding Availability of Information. Besides assisting the B o a r d in its de termination of the pending application, the B o a r d expects that the hearing will enable it to adopt simplified procedures for acquisition of factoring companies w h e r e the balance of the public interest factors the B o a r d is required to consider will usually be favorable. It also expects that the hearing will enable it to indicate what types of proposed ac quisitions will not be accepted and those that will be considered only if the applicant (a) agrees that certain activities will be discon tinued promptly upon acquisition of the c o m pany involved or (b) demonstrates that the anticompetitive or other adverse effects of the proposed transaction are clearly outweighed in the public interest by greater convenience, gains in efficiency, or other benefits to the public. Persons interested in participating in the hearing by presenting material orally should inform the Secretary of the Board in writing not later than N o v e m b e r 4, 1971. Each person admitted as a party to the proceeding will be given up to 30 minutes to present his views. Notice of Hearing Regarding Investment Company A ctiv itie s B y notice published in the Federal R e g ister on August 25, 1971 (36 Federal Register 16695), the B o a r d of Governors proposed to add to the list of activities that it has determined to be closely related to banking or managing or controlling banks (§222.4(a) of Regulation Y) the following: "serving as investment adviser to an investment c o m p a n y registered under the Investment C o m p a n y Act of 1940." The Investment C o m p a n y Institute has submitted a m e m o r a n d u m of law in which it expresses, a m o n g others, the following P R O P O S E D AMENDMENT T O R E G U L A T I O N Y Effect of Acquisition of Additional Bank on Benefits Conferred on Certain One-Bank Holding Companies Section 4 of the Holding C o m p a n y Act generally requires holding companies to dis continue nonpermissible nonbanking activ ities within two years of their formation, but Congress conferred certain benefits with re spect to nonbanking activities on those c o m panies which controlled a single bank on D e c e m b e r 31, 1970, and thus b e c a m e subject to the B a n k Holding C o m p a n y Act by operation of law. In s o m e cases, the companies are given ten years rather than two within which to divest, in others no divestiture is required, -4- % and in a few cases there m a y b e an exemption f r o m the section 4 prohibitions in their en tirety, prospectively as well as retrospec tively. To clarify the nature of these benefits as privileges contingent upon their p o s sessors' continuing status as one-bank hold ing companies rather than as vested rights, the Board is considering amending Regula tion Y, under authority of section3, section4, and section 5(b) of the Act, to provide that the acquisition or m e r g e r by a one-bank holding c o m p a n y of an additional bank would cause that c o m p a n y to lose whatever special exemptions f r o m section 4 that it had. In gen eral, a c o m p a n y that controlled one bank on D e c e m b e r 31, 1970, would have two years f r o m its acquisition of a second bank in which to cease nonbanking activities or qualify t h e m under another provision of section 4, unless its right to continue the activity would other wise expire within a shorter period. The B o a r d would reserve the right to preserve, by order, 1970 section 4 grandfather rights of a c o m p a n y which acquires an additional bank to save it f r o m failing, or in any other situation in which the application of the gen eral rule would be manifestly unfair or con trary to the public interest. The Boa r d proposes to a m e n d §222.3 of Regulation Y by adding a n e w subsection as follows: §222.3 Acquisition of B a n k Shares or Assets. (b) The t e r m "1970 section 4 grandfather rights" m e a n s all rights and privileges, whether arising under section 4(a)(2) or 4(c)(ii) of the Act or otherwise, held by a c o m p a n y grandfathered in 1970 to hold or acquire any nonbank shares or engage in any nonbanking activities to a greater extent or for a longer period than would be permitted under section 4 of the Act in the case of any bank holding c o m p a n y which is not a c o m p a n y grandfathered in 1970. (2) Except to the extent otherwise p r o vided by order of the B o a r d in specific cases, any c o m p a n y grandfathered in 1970 which ac quires any bank (by m e r g e r with its subsidiary bank or otherwise) or acquires control of any bank (as control is defined in section 2(a)(2) of the Act) after D e c e m b e r 31, 1970, shall be d e e m e d to have prospectively relinquished its 1970 section 4 grandfather rights on the date of such acquisition, and any such right shall terminate on the earlier of the following dates: (i) the date upon which it would terminate if the c o m p a n y had b e c o m e a bank holding c o m p a n y for the first time on the date of the acquisiton; (ii) the date upon which it would terminate without reference to this sec tion. * * * To aid in the consideration of this matter * * * * * by the Board, interested persons are invited (c) Effect of bank acquisition on certainto submit relevant data, views, or arguments. A n y such material should be submitted in grandfather rights. writing to the Secretary, Bo a r d of Governors (1) For the purposes of this subsection: (a) The t e r m " c o m p a n y grandfathered inof the Federal Reserve System, Washington, D. C. 20551, to be received not later than 1970" m e a n s any c o m p a n y which b e c a m e a bank holding c o m p a n y on D e c e m b e r 31,1970, D e c e m b e r 1, 1971. Such material will be m a d e as a result of the B a n k Holding C o m p a n y Act available for inspection and copying upon re quest, except as provided in §2 61 *6 (a) of the A m e n d m e n t s of 1970, and includes any c o m pany defined in section 2 (b) of the Act as a Board’ s Rules Regarding Availability of In " c o m p a n y covered in 1970." formation. - 5 -
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