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FEDERAL RESERVE BANK
OF NEW YORK
I C ir c u l a r N o . 6 87 3 I
I D e c e m b e r 3 0 , 1971 |

BANK HOLDING COMPANIES
— Proposed Revision of Procedures for Engaging in Certain
Nonbanking Activities
— Suspension of Procedures Under §225.4(3) of Regulation Y

To All Banks, and Others Concerned,
in the Second Federal R eserve District:

The following statement was issued December 22 by the Board of Governors of the Fed­
eral Reserve System:
The Board of Governors of the Federal Reserve System today proposed further re­
visions of its rules permitting bank holding companies to make de novo entry into ac­
tivities closely related to banking and to acquire small finance companies.
Under the proposal, the Board would determine that, with respect to activities it
has designated as closely related to banking, entry by a bank holding company through a
new subsidiary — rather than by acquiring companies already engaged in those activities—
is likely to produce benefits to the public that outweigh possible adverse effects. Con­
sequently, there would be no necessity for a hearing in such cases except when the Board,
in its discretion, determined the need for one.
The only bank-related activity to which the proposed procedure for de novo entry
would not be applicable is the sale of insurance in a community that the holding company
demonstrates has inadequate insurance agency facilities at the present time.
A bank holding company may now acquire a finance company with assets of less than
$10 million without prior notification to its Reserve Bank. Such notification is required
within 30 days after the transaction. The proposal would require the holding company
also to publish in a newspaper in the communities to be served notice of such an acquisi­
tion within 30 days of the transaction. Under the proposal, bank holding companies may
acquire small finance companies that make credit life or credit disability insurance
available to their borrowers through a group insurance policy issued to the finance
company.
The Board also suspended its existing simplified procedures pending consideration
of the proposed changes in its regulation. Comments on the proposal should be submitted
to the Board by February 1, 1972.
Printed on the following pages is an excerpt from the Federal Register of December 28,
containing the text of the proposed amendments. Comments thereon should be submitted by
February 1, 1972 and may be sent to our Bank Applications Department.




Alfred Hayes,
President.

PROPOSED RULE MAKING

FEDERAL RESERVE SYSTEM
E 12 CFR Part 225]
[Reg. TJ

BANK HOLDING COMPANIES
Procedures for Engaging in Certain
Nonbanking Activities
Section 4(c) (8) -of the Bank Holding
Company Act provides, among other
things, that determinations that activi­
ties are closely related to banking may
be made “by order or regulation” and
that the Board may differentiate between
activities commenced de novo and activi­
ties commenced by the acquisition of a
going concern.
Pursuant to these provisions and the
provisions of section 5 of the Act, the
Board initiated a rule making proceed­
ing. Notice of the proposed rule making
was published in the F e d e r a l R e g i s t e r on
January 29, 1971, and public hearings on
the proposals were held before members
of the Board on April 14, April 16, and
May 12, 1971. After full consideration of
all comments and views presented by in­
terested persons, the Board adopted
amendments to Regulation Y on May 20,
June 10, August 5, and August 19, 1971.
By the May 20 amendments, the Board
adopted procedures under which holding
companies may engage in activities that
the Board has determined to be closely
related to banking. With respect to an ac­
tivity to be engaged in de novo, a hold­
ing company (1) must publish notice of
a proposed activity in a local newspaper,
(2) within 30 days of publication, must
furnish the appropriate Reserve Bank
with copies of said notice, and (3) 45
days after furnishing said information to
said Reserve Bank, may engage in the
proposed de novo activity unless the
holding company is notified to the con­
trary within that time or unless per­
mitted to consummate at an earlier date.
Where an acquisition of a going concern
is involved, the holding company must
file a formal application and await
Board consideration of the public inter­
est aspects of the transaction, namely, a
Board determination whether the pro­
posed acquisition can reasonably be ex­
pected to produce benefits to the public,
such as greater convenience, increased
competition, or gains in efficiency, that
outweigh possible adverse effects, such as
undue concentration of resources, de­
creased or unfair competition, conflicts
of interests, or unsound banking prac­
tices.
On August 19, 1971, the Board adopted
simplified procedures with respect to (1)
operating a finance company with assets
of less than $10 million; (2) engaging in
activities that are shifted from a bank to
its holding company or an affiliated sub­
sidiary in the holding company system;
and (3) engaging in certain insurance
agency activities.
As a result of its continuing review of
Regulation Y, the Board proposes to
amend its procedures regarding activi­
ties authorized under section 4(c) (8) of
the Act. The proposals herein are based




on the oral and written presentations
made in connection with the Board’s rule
making proceeding (including the hear­
ings on April 14, April 16, and May 12)
and the Board’s experience under the
regulatory provisions that resulted from
that rule making proceeding.
In view of the extensive consideration
given to the public interest factors of
holding companies engaging in bank re­
lated activities, the Board believes that,
with respect to the designated activities,
de novo entry by a bank holding com­
pany can reasonably be expected to pro­
duce benefits to the public and that such
benefits can reasonably be expected to
outweigh possible adverse effects within
the meaning of section 4(c) (8) of the
Act. Accordingly, the Board believes that
a regulation providing procedures for de
novo entry by a holding company into
such activities, without the necessity for
further opportunity for hearing, is war­
ranted. Adoption of the proposal herein
would mean that de novo entry into any
of the activities specified in § 225.4(a)
(except § 225.4(a) (9) (iii) (b) ) may be
consummated under the proposed pro­
cedures without any further opportunity
for hearing. However, the Board in its
discretion, may afford interested persons
a hearing, whenever the Board finds that
the circumstances of a particular matter
so warrant.
In connection with finance companies,
the proposal incorporates the simplified
procedures which the Board adopted on
August 19, but with the following
modifications:
(a) The holding company must pub­
lish notice of the acquisition within 30
days after consummation of the trans­
action, and
(b) A finance company whose insur­
ance involvement is limited to making
available to its borrowers (at each bor­
rower’s option) credit life and/or credit
disability insurance covering the balance
on the borrower’s debt, through a group
insurance policy in which the finance
company is the assured policyholder, may
be acquired under the proposed simpli­
fied procedures.
With respect to the shifting of activi­
ties to a collateral affiliate or a parent
holding company, the proposal makes no
substantial change in the current pro­
visions of § 225.4(b) (3) (i) (b).
Pending consideration of the propos­
als herein, the Board has suspended the
operation of § 225.4(b) (3) of Regulation
Y until further notice.
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
February 1, 1972. Such material will be
made available for inspection and copy­
ing upon request, except as provided in
§ 261.6(a) of the Board’s rules regarding
availability of information.
Under the proposal, § 225.4 of Regula­
tion Y would be amended as follows:
The fourth sentence of the opening
portion of § 225.4(a), starting with the

words “The following activities” and
ending with the first colon, would be re­
placed by the following sentences; and
paragraph (b) (1) and (3) would be
amended to read as follows:
§ 225.4

Nonbanking activities.

(a) Activities closely related to bank­
ing or managing or controlling banks.
* * • With respect to the activities
designated below, the Board has deter­
mined that de novo entry by a bank
holding company can reasonably be ex­
pected to produce benefits to the public
and that such benefits can reasonably
be expected to outweight possible adverse
effects within the meaning of section
4(c)(8) of the Act except that, with
respect to the activities in subparagraph
(9) (iii) (b) of this paragraph, the Board
has determined only that the activities
are closely related to banking. Accord­
ingly, the procedures of paragraph (b)
(1) of this section are prescribed for de
novo entry into the designated activities.
With respect to the acquisition of a going
concern, the Board has concluded that
the activities designated below are closely
related to banking but the bank holding
company must await a Board determina­
tion whether the proposed acquisition
can reasonably be expected to produce
benefits to the public that outweigh pos­
sible adverse effects within the meaning
of section 4(c)(8) of the Act. Accord­
ingly, the procedures of § 225.4(b) (2)
are prescribed for the acquisition of a
going concern.
(b) (1) De novo entry. A bank holding
company may engage de novo (or con­
tinue to engage in an activity earlier
commenced de novo) directly or indi­
rectly, solely in activities described in
paragraph (a) of this section (except in­
surance agency activities under para­
graph (a) (9) (iii) (b) of this section) 45
days after the holding company has in­
formed its Reserve Bank of its proposal
to engage in such activity, unless the
company is notified to the contrary with­
in that time or is permitted to consum­
mate the transaction at an earlier date.
Every such notification shall be accom­
panied by a copy of a publication (in sub­
stantially the same form as F.R. Y -4A ) of
the proposal to engage in the activities
published within the preceding 30 days
in a newspaper(s) of general circulation
in the communities to be served. Such
notification to the Reserve Bank shall
provide information as to the general
nature and extent of the activities to be
engaged in. Whenever necessary to ef­
fectuate the purposes of the Act, the
Board may require suspension or dis­
continuation of any action taken, or
divestiture of any interest acquired, on
the authority of this provision, and may
withdraw such authority with respect to
any particular holding company. The
Board has determined that (with the
exception noted above) the activities
described in paragraph (a) of this sec­
tion are so closely related to banking as
to be a proper incident thereto and that
de novo entry into said activities can
reasonably be expected to produce bene­
fits to the public that outweigh possible
adverse effects within the meaning of

PROPOSED RULE MAKING
s e ctio n 4 (c ) (8) o f th e A ct. A cco r d in g ly ,
u nless th e B o a rd a t its d iscretion a fford s
in te re ste d p erson s a n o p p o rtu n ity to p r e ­
se n t fu r th e r o ra l o r w ritten view s or d a ta
o r o rd e rs a h e a rin g , a tr a n s a ctio n m a y
b e co n su m m a te d u n d er th is s u b p a r a ­
g ra p h w ith o u t a n y fu r th e r n o tice o r o p ­
p o r tu n ity f o r h e a rin g . I f adverse c o m ­
m e n ts o f a su b sta n tiv e n a tu re a re r e ­
ce iv e d b y th e R e se rv e B a n k w ith in 30
da ys a ft e r th e c o m p a n y h as p u b lish ed its
p r o p o s a l1 o r, i f it oth erw ise a pp ea rs a p ­
p r o p r ia te in a p a rticu la r case, th e R e ­
serve B a n k m a y in fo r m th e co m p a n y
th a t (i) th e p ro p o s a l sh all n o t be c o n ­
su m m a te d u n til s p e cifica lly a u th orized
b y th e R e se rve B a n k or b y th e B o a rd or
(ii) th e p ro p o sa l sh a ll be p rocessed in
a c c o r d a n c e w ith th e p roced u res o f s u b p a ra g r a p h (2 ) o f th is p a ra g ra p h ( b ) . A
b a n k h o ld in g c o m p a n y m a y en ga ge de
n o v o in in su ra n ce a g e n cy a ctivities u n d er
p a ra g r a p h (a ) (9) (iii) (b ) o f this s ection
o n ly in a c c o r d a n c e w ith th e p roced u res
o f s u b p a ra g ra p h (2 ) o f th is p a ra g ra p h
(b ).

(i)
M a k in g, a cq u irin g , or serv icin gc irc u la tio n in th e co m m u n itie s t o be
loa n s or o th e r ex ten sion s o f cre d it fo r served, a n d ( c ) w h en ev er n e ce ss a ry to
person a l, fa m ily , or h ou s e h o ld p u rp oses: e ffectu a te th e p u rp oses o f th e A ct, th e
Provided, T h a t th e co m m e n ce m e n t or B o a rd m a y req u ire su sp en sion o r d is c o n ­
ex p a n sion o f su ch a ctiv ity does n o t in ­ tin u a tion o f a n y a ctio n ta k en , o r d iv e sti­
volv e a n a cq u isition o f assets o f $10 m il­ tu re o f a n y a cq u isition m a d e, o n a u t h o r ­
lio n or m o re (or th e a cq u isition o f shares ity o f th is p rov ision , a n d m a y w ith d r a w
o f a c o m p a n y h a v in g su ch assets) a n d s u ch a u th o r ity w ith re s p e ct to a n y p a r ­
in cid e n ta l in su ra n ce a ctivities are lim it­ ticu la r h o ld in g c o m p a n y ;
ed to th e m a k in g a v a ila b le t o a b orrow er,
(ii)
E n g a g in g in a ctivities d e scrib e d in
a t th e b o rro w e r’s op tio n , cre d it life in ­ p a ra g r a p h (a ) o f th is s e ctio n th a t a re
s u ra n ce 2 a n d /o r cre d it d isa b ility in su r­ s h ifte d fr o m a b a n k in th e h o ld in g c o m ­
a n ce 3 on a grou p basis u n d er w h ic h th e p a n y system a n d w ere e n g a g ed in b y th e
c re d ito r is issued a grou p m a ster p o licy b a n k eith er de n o v o o r as a resu lt o f a
as a p o licy h o ld e r a n d th e b o rro w e r r e ­ m erg er tra n s a ctio n d es crib e d in a n d a p ­
ceives a ce rtifica te o f in su ra n ce e v id e n c ­ p ro v e d b y a F ed era l su p ervisory a g e n c y
in g his cov era g e a n d s ta tin g th e p r in c i­ p u rsu a n t to s e ctio n 1 8 (c) o f th e F e d e ra l
p a l p rov ision s o f th e g rou p p o lic y ; e x ­ In su ra n ce A ct (12 U .S.C. 1 8 2 8 ( c ) ) , 45
c e p t th a t (a ) n o h o ld in g c o m p a n y m a y days a fte r th e h o ld in g c o m p a n y h a s i n ­
a cq u ire m o re th a n $50 m illion in assets fo r m e d its R eserve B a n k o f its p r o p o s a l
in a n y ca le n d a r y ea r u n d er th e p r o v i­ to s h ift su ch a ctiv ity , u n less th e c o m p a n y
sion s o f th is su b d ivision , (b ) w ith in 30 is n o tifie d to th e c o n tra ry w ith in th a t
d a ys a fte r th e co n su m m a tio n o f su ch an tim e o r is p erm itted to co n su m m a te th e
a cq u isition , th e h o ld in g c o m p a n y sh a ll tr a n s a ctio n a t an ea rlier da te. S u ch n o t i ­
in fo r m its R eserve B a n k o f th e a cq u is i­ fica tio n sh a ll p ro v id e in fo r m a tio n as to
tion , a n d every su ch n o tifica tio n sh a ll be th e gen era l n a tu re a n d e x te n t o f th e a c ­
a c c o m p a n ie d b y a c o p y o f a n o tic e o f th e tivities to be s h ifte d a n d th e lo c a tio n s
*
*
*
*
*
a cq u isition p u b lish ed w ith in th e p r e c e d ­
(3)
Simplified procedures. T h e p r o ­in g 30 days in a n ew sp a p er (s) o f gen era l in v olved . W h e n e v e r n e ce ssa ry to e ffe c t u ­
a te th e p u rposes o f th e a ct, th e B o a r d
ced u res o f s u b p a ra g ra p h s (1) a n d (2)
m a y req u ire susp ension o r d is c o n tin u a ­
o f th is p a ra g r a p h (b ) sh all n o t a p p ly
tio n o f a n y a ctio n taken , o r d iv e stitu re
w ith re sp e ct to a h o ld in g co m p a n y or a
2 Credit life insurance insures the creditor
su b sid ia ry th e re o f e n g a g in g in th e f o l ­ against loss in case of death of a bor­ o f a n y in terest a cq u ired , o n a u th o r ity
o f th is p rov ision , a n d m a y w ith d ra w s u ch
rower. The amount of insurance may be con­
lo w in g :
a u th o rity w ith resp ect to a n y p a r tic u la r
stant or decreasing depending upon whether
h o ld in g co m p a n y .
1 If a Reserve Bank decides that adverse the loan is to be repaid in one payment or,

comments are not of a substantive nature,
the person submitting the comments may
request review by the Board of that decision
in accordance with the provisions of § 265.3
of the Board’s rules regarding delegation of
authority (12 CFR 265.3) by filing a peti­
tion for review with the Secretary of the
Board.




as in an installment contract, in a series of
payments.
3 Credit disability insurance insures the
creditor against loss resulting from a bor­
rower’s inability to make installment pay­
ments when he is disabled. This type of in­
surance is sometimes called “ accident and
health”.

B y o rd e r o f th e B o a rd o f G o v e rn o rs ,
D ecem b er 21,1971.
[ seal]

T

ynan

S m it h ,

Secretary of the Board.
[FR Doc.71-18090 Piled 1 2-27-71:9:22 am]


Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102