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FEDERAL RESERVE BANK OF NEW YORK r C ircular N o. 7 4 1 3 T L June 26, 1574 J REVISED AMENDMENT TO REGULATION Y Activities Permitted to Trust Company Subsidiaries of Bank Holding Companies To A ll Bank H olding Companies, and O thers Concerned, in the Second Federal R eserve D istrict: Our Circular No. 7401, dated May 30, 1974, transmitted an amendment, effective June 24, 1974, to Regulation Y, “ Bank Holding Companies,” of the Board of Governors of the Federal Reserve System. That amendment clarified the deposit-taking and lending activities permissible to trust company subsidiaries of bank holding companies. The Board of Governors has revised that amendment by deleting the phrase “ sale of Fed eral funds” therefrom. In submitting the revised amendment for publication in the Federal Register, the Board made the following statement: O n M ay 24, 1974, (3 9 Federal Register 1 9 7 7 4 ), the B oard of G overnors announced an amendment to section 2 2 5 .4 ( a ) ( 4 ) of Regulation Y that clarified the boundaries upon deposit-taking and investing activities that are properly incidental to trust com pany activities which the B oard has determined to be so closely re lated to banking or m anaging or controlling banks as to be a proper incident thereto. T he amended regulation permits trust com pany subsidiaries of bank holding com panies increased lati tude in their deposit-taking activity but prohibits such trust companies from m aking loans or investments except the sale o f Federal funds, the making o f call loans to securities dealers or the purchase o f m oney market instruments such as certificates o f deposit, com m ercial paper, governm ent or m unicipal securities, and bankers acceptances. Such limitations on perm issible loans and investments are intended to insure that bank holding companies do not, in contravention o f section 3 ( d ) of the A ct, engage in the business o f accepting demand deposits and making com m ercial loans outside of the State in which a bank holding com pany has its principal banking operations. H ow ever, the enumeration in the regulation of the “ sale of F ed eral funds” is not intended to supersede previous B oard interpretations to the effect that the sales o f funds by trust com panies to member banks are subject (u n d e r R egulations D and Q ) to reserve requirements and interest rate ceilings. A ccordin g ly , to resolve any am biguity concerning trust com panies’ participation in the Federal funds market, the phrase “ sale of Federal fu n d s” contained in section 2 2 5 .4 (a ) ( 4 ) ( iii) deleted. is hereby Enclosed is a copy of the revised amendment to Regulation Y, which supersedes the copy you received with our Circular No. 7401. Additional copies of the enclosure will be furnished upon request. A lfred H ayes , President. Board of Governors of the Federal Reserve System BANK HOLDING COMPANIES A M E N D M E N T TO R E G U LA TIO N Y E ffective June 24, 1974, section 2 2 5 .4 (a ) ( 4 ) is amended to read as fo llo w s : S E C T IO N 225.4 — N O N B A N K I N G A C T IV IT IE S (a ) Activities closely related to banking or managing or controlling banks. * * * The follow in g activities have been determ ined by the B oard to be so closely related to banking o r m anaging or controlling banks as to be a proper incident thereto: * * * ( 4 ) P e rfo rm in g or carrying on any one or m ore o f the functions or activities that may be perform ed or carried on by a trust com pany (in clu din g activities of a fiduciary, agency, or custodian n atu re), in the manner authorized by Federal or State law, so long as the institu tion does not make loans or investments or accept deposits other than ( i ) deposits that are generated from trust funds not currently in vested and are properly secured to the extent required by law, or ( i i ) deposits representing funds received fo r a special use in the capacity o f m anaging agent or custodian for an ow ner of, or investor in, real property, securities, or other personal property, or fo r such ow ner or in vestor as agent or custodian o f funds held for investment or escrow agent, or fo r an issuer of, or broker or dealer in, securities, in a ca pacity such as paying agent, dividend disburs ing agent, or securities clearing agent, and not em ployed by or fo r the account o f the customer in the manner '‘•of a general purpose checking account or bearing interest, or ( iii) m aking o f call loans to securities dealers or purchase o f m oney market instruments such as certificates o f deposit, com m ercial paper, governm ent or municipal securities, and bankers’ acceptances (su ch authorized loans and investments, h ow ever, may not be used as a m ethod o f channeling funds to nonbanking affiliates o f the trust c o m p a n y ); P R IN T E D I N N E W VORK