Full text of Federal Reserve Bank of New York Circulars : 7243. Revised Proposed Amendment to Regulation Y

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FED E R AL R E SE R V E BANK
OF NE W YORK
J* Circular No. 7 2 4 3 "I
L October 3, 1973 J

REVISED PROPOSED AMENDMENT TO REGULATION Y
Activities Permitted to Trust Company Subsidiaries of Bank Holding Companies

To A ll Bank Holding Companies, and Others Concerned,
in the Second Federal Reserve D istrict:
Following is the text o f a statement issued today by the Board of Governors o f the Federal
Reserve System:
The Board of Governors of the Federal Reserve System today proposed a revised amendment to its
Regulation Y — regulating bank holding companies regarding trust company subsidiaries.
As revised, the proposed amendment would broaden the scope of permissible deposit-taking by trust
company subsidiaries beyond what was first suggested, and would narrow the scope of incidental lending
activities permissible for such companies.
The revisions proposed today reflect the Board’s consideration of comment received on proposals to
amend Regulation Y, published July 3, to clarify the deposit-taking and lending and investment activi­
ties of trust company subsidiaries of bank holding companies.
The revised proposal would:
— Add to the deposit-taking permitted to trust companies deposits arising from custodial and managingagent accounts and other specified agency relationships. (Deposit-taking, as originally proposed, would have
been limited to deposits arising from trust funds not currently invested, and those received under trust
instruments, or deposits received for special use on behalf of an issuer of securities or an investor in securities.)
— Prohibit trust company subsidiaries from making loans or investments except the sale of Federal
funds, the making of call loans to securities dealers or the purchase of money market instruments such
as certificates of deposit, commercial paper, government or municipal securities and bankers’ acceptances.
(The original proposal would have permitted commercial lending by a trust company under some circum­
stances.)
Such loans and investments may not be used as a method of channeling funds to nonbanking affili­
ates of the trust company, under the new proposal.
Comment on the revised proposal will be received by the Secretary of the Board through November 2, 1973.

Printed below is the text of the revised proposed amendment to Regulation Y. Comments
thereon should be submitted by November 2, and may be sent to our Bank Applications Department.
A lfred H a y e s ,

P resident.

(Reg. Y )
BANK HOLDING COMPANIES
Nonbanking Activities and Interests
By notice of proposed rule making published in the
Federal Register on July 13, 1973 (38 Federal Regis­
ter 18691), the Board of Governors proposed to amend
section 2 2 5 .4 (a )(4 ) of Regulation Y to clarify the
boundaries upon deposit-taking activities that are prop­
erly incidental to trust company activities which the
Board has determined to be so closely related to bank­
ing or managing or controlling banks as to be a proper
incident thereto, and to provide that the kinds of




activities authorized under section 225 .4 (a )(4 ) include
those performed not only by trust company subsidiaries
that are State-chartered, but also by any such subsidi­
aries that may operate as limited purpose trust com­
panies under national bank charters and that do not
both accept demand deposits and make commercial
loans.
Following consideration of the comments received,
the Board has determined to modify its proposal. Pur­
( over)

suant to its authority under section 4 ( c ) ( 8 ) of the
Bank Holding Company Act (12 U.S.C. 1 8 4 3 (c )(8 )),
the Board proposes to amend section 225.4(a) (4 ) to
authorize nonbanking trust company subsidiaries of
bank holding companies to accept deposits that are
generated from trust funds not currently invested and
deposits representing funds received for a special use
in the capacity of a managing agent or custodian for
an owner of, or investor in, real property, securities, or
other personal property, or as agent for an issuer of,
or broker or dealer in, securities, provided that such
agency or custodian accounts are not employed by
or for the account of a customer in the manner of a
general purpose check account and do not bear interest.
Additionally, the amendment now proposed would pro­
hibit trust company subsidiaries from making loans
or investments except the sale of Federal funds, the
making of call loans to securities dealers or the pur­
chase of money market instruments such as certificates
of deposit, commercial paper, government or municipal
securities, and bankers’ acceptances. Such authorized
loans and investments, however, may not be used as
a method of channeling funds to nonbanking affiliates
of the trust company. The revised proposal also retains
a feature of the Board’s original proposal permitting
the acquisition by bank holding companies under sec­
tion 4 ( c ) ( 8 ) of the Bank Holding Company Act of
nonbanking trust companies having national bank char­
ters. It is recognized that holding companies may, in
their home State, choose to apply for limited purpose
trust companies under section 3 of the Act in order to
obtain broader lending privileges.
The revised proposal would broaden the scope of
permissible deposit-taking by trust company subsidi­
aries beyond the perimeters of the Board’s original
proposal, but narrow the scope of permissible, inci­
dental lending activities. In so doing, it seeks to balance
the desirable objectives of facilitating the achievement
of greater efficiencies in the conduct of trust operations
and providing additional incentives for increased com­
petition for trust business on a nationwide scale on
the one hand and, on the other, to remove the possi­
bilities of indirect evasion of section 3 (d ) of the Bank
Holding Company Act (12 U.S.C. 1842(d)) through
the augmentation of the commercial lending capabilities
of bank holding companies in States other than the
State in which their principal banking subsidiaries op­
erate. The revised proposal draws a rule that, based
on the comments received, the Board believes would
enable incidental deposit-taking consistent with the full




range of conventional functions or activities of a trust
company without risk of significant displacement of
commercial bank checking account services.
The proposed amended subparagraph (a) (4 ) of
section 225.4 of Regulation Y would read as follows:
SECTION 225.4— N O N BA N K IN G A C T IV IT IE S
(a) Activities closely related to banking or man­
aging or controlling banks. * * * The following activi­
ties have been determined by the Board to be so closely
related to banking or managing or controlling banks
as to be a proper incident thereto:
*

*

*

(4 )
Performing or carrying on any one or more
of the functions or activities that may be performed or
carried on by a trust company (including activities of
a fiduciary, agency, or custodian nature), in the manner
authorized by Federal or State law, so long as the
institution does not make loans or investments or accept
deposits other than (i) deposits that are generated
from trust funds not currently invested and are properly
secured to the extent required by law, or (ii) deposits
representing funds received for a special use in the
capacity of managing agent or custodian for an owner
of, or investor in, real property, securities, or other
personal property, or for such owner or investor as
agent or custodian of funds held for investment or
escrow agent, or for an issuer of, or broker or dealer
in, securities, in a capacity such as paying agent, divi­
dend disbursing agent, or securities clearing agent, and
not employed by or for the account of the customer
in the manner of a general purpose checking account or
bearing interest, or, (iii) sale of Federal funds, making
of call loans to securities dealers or purchase of money
market instruments such as certificates of deposit, com­
mercial paper, government or municipal securities, and
bankers’ acceptances (such authorized loans and in­
vestments, however, may not be used as a method of
channeling funds to nonbanking affiliates of the trust
company) ;
To aid in the consideration of this matter by the
Board, interested persons are invited to submit relevant
data, views, or argument. Any such material should be
submitted in writing to the Secretary, Board of Gov­
ernors of the Federal Reserve System, Washington,
D. C. 20551, to be received not later than November
2, 1973.