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FED ER A L RESERVE BANK O F NEW YORK C i r c u l a r N o . 6903 F e b r u a r y 2 4 , 1 972 D 3] 2 J PROPOSED AMENDMENT TO REGULATION Y To Perm it Bank Holding Companies to Lease Real Property Under Certain Conditions To A ll B a n k s, and O thers Concerned, in the Second F ederal R e se rv e D istrict: Following is the text of a statement issued February 18 by the Board of Governors of the Federal Reserve System: The Board of Governors of the Federal Reserve System today invited comment on a proposal to perm it bank holding companies to lease real property under certain condi tions. Comments should be received not later than March 17. Under the proposal to amend the Board's regulation governing the activities of bank holding companies (Regulation Y), the following activity would be regarded as so closely related to banking or managing or controlling banks as to be a proper incident thereto: "Leasing real property where: "(i) the property to be leased is acquired specifically for the leasing transaction under consideration; "(ii) the lease is on a net lease basis and the effect of the transaction will be to compensate the le sso r for not le ss than the le sso r 's full investment in the property; "(iii) the le ss e e has an option to purchase the property at the expiration of the lease; "(iv) in the event the le sse e fails to ex ercise the aforesaid option, the real property a ssets shall be liquidated as soon as practicable and, in no event, later than one year from the expiration of the lease; "(v) the aggregate investment in such real property by the bank holding company and its subsidiaries shall at no time exceed five per cent of the equity capital of the bank holding company." This proposal is part of a ser ie s the Board has made concerning activities regarded as closely related to banking under the 1970 amendments to the Bank Holding Company Act and thus p erm issib le activities for bank holding com panies, subject to Board ap proval in individual c a se s. Printed on the reverse side is the text of the notice of proposed rule making. Comments thereon should be submitted by March 17 and may be sent to our Bank Applications Depart ment. Additional copies of this circular will be furnished upon request. Alfred Hayes, P resid e n t. (Over) (Reg. Y) BANK HOLDING COMPANIES Nonbanking A c tiv itie s of Bank Holding Companies (i) the property to be leased is acquired sp ecifically for the leasing transaction under consideration; The Board of Governors is considering farther implementation of its regulatory authority under section 4(c)(8) of the Bank Holding Company Act to permit bank holding companies to lease real property under c e r tain conditions. In this connection, the Board noted that it has received an application from First Chicago Corporation, Chicago, Illinois, to engage, through its subsidiary, F irst Chi cago Leasing Corporation, in the leasing of real property in a manner somewhat sim ilar to that which would be authorized by the following proposed regulation for bank hold ing companies generally, subject to the pro cedures of section 225.4(b) of Regulation Y. (ii) the lease is on a net lease basis and the effect of the transaction w ill be to com pensate the le sso r for not le ss than the le ss o r 's full investment in the property; Accordingly, the Board proposes to amend section 225.4(a) of Regulation Y to perm it bank holding com panies, subject to the pro cedures of section 225.4(b), to engage in the leasing of real property under certain con ditions. The text of the proposed amendment reads as follows: § 225.4 - Nonbanking A ctivities. (a) A ctivities clo sely related to banking or managing or controlling banks. * * * The following activities have been determined by the Board to be so c lo sely related to banking or managing or controlling banks as to be a proper incident thereto: * * * (12) leasing real property where: (iii) the le ss e e has an option to purchase the property at the expiration of the lease; (iv) in the event the le ss e e fails to e x e r c ise the aforesaid option, the real property a sse ts shall be liquidated as soon as p racti cable and, in no event, later than one year from the expiration of the lease; (v) the aggregate investment in such real property by the bank holding company and its subsidiaries shall at no time exceed five per cent of the equity capital of the bank holding company. * * * * * To aid in the consideration of this matter by the Board, interested persons are invited to submit relevant data, view s, or arguments. Any such m aterial should be submitted in writing to the Secretary, Board of Governors of the Federal R eserve System, Washington, D.C. 20551, to be received not later than March 17, 1972. Such m aterial will be made available for inspection and copying upon r e quest, except as provided in section 261.6(a) of the Board's Rules Regarding Availability of Information. By order of the Board of Governors, February 18, 1972.