View original document

The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.

FEDERAL RESERVE BANK
OF NEW YORK
No. 7 9 3 5 1
[ Circular
August 13, 1976
J

PROPOSED AMENDMENT TO REGULATION Y
Providing Management Consulting Advice
To A ll Bank Holding Companies, and Others Concerned,
in the Second Federal Reserve D istrict:

Following is the text of a statement issued August 2 by the Board of Governors of the Federal
Reserve System:
The Board of Governors of the Federal Reserve System announced today that it would consider possible
adoption of providing management consulting advice to certain types of nonaffiliated financial institutions as
an activity permissible for bank holding companies.
The Board will receive comment on the proposed amendment to its Regulation Y (regulation of bank
holding companies) and on a related application, through September 8, 1976.
The Board specified the following depository-type financial institutions as included in its proposal: mutual
or stock savings banks and savings and loan or building and loan associations, credit unions, industrial banks,
Morris Plan banks, cooperative banks, industrial loan companies and similar institutions.
Management consulting advice for nonaffiliated commercial banks is already an activity permissible for
bank holding companies, under certain conditions and restraints.
The Board invited comment on the following questions:
1. Whether providing management consulting advice to the indicated kinds of institutions, not affiliated
with the bank holding company providing the advice, is an activity closely enough related to banking or bank
management to justify its addition to the list of businesses permissible for bank holding companies.
2. Whether a proposal by Worcester Bancorp, Inc., of Worcester, Mass., to provide management consulting
advice to nonaffiliated savings banks could be expected to produce public benefits outweighing any adverse
effects. Worcester proposes to provide management advice to savings banks not affiliated with it under the same
conditions imposed by the Board on giving such advice to commercial banks.
Any requests for a hearing on these questions should be accompanied by a statement summarizing the
evidence expected to be presented or elicited at the hearing, and a statement as to why the question should not
be resolved without a hearing.

Printed below is the text of the Board of Governors’ proposal. Comments thereon should be
submitted by September 8, and may be sent to our Domestic Banking Applications Department.
Paul

A.

V

olcker,

President.
[Reg. Y ]
BANK HOLDING COMPANIES
[Docket No. R-0051]
Notice of Proposed Rulemaking
Relating to Providing Management Consulting Advice

The Board of Governors has received an application
Heel by Worcester Bancorp, Inc., Worcester, Massa■husetts, pursuant to section 4 (c)(8 ) of the Bank
Holding Company Act (12 U.S.C. 1843(c)(8)) and
1225.4 of the Board’s Regulation Y (12 CFR 225.4(b)
2 )), for prior approval to engage de novo in providing
Management consulting advice to nonaffiliated savings
anks. Providing such services to nonaffiliated com­




mercial banks has previously been determined by the
Board of Governors to be closely related to banking.
(See 12 CFR §225.4(a)(12).)
Applicant proposes to provide management consulting
services to nonaffiliated savings banks under the same
conditions and with the same restrictions that are appli­
cable under §225.4(a) (12) of Regulation Y (12 CFR
(over)

§225.4(a) (12)), which permits bank holding com­
panies to provide management consulting advice to nonaffiliated banks:
Provided that, (i) neither the bank holding com­
pany nor any of its subsidiaries own or control,
directly or indirectly, any equity securities in the
client [bank] ; (ii) no officer, director or employee
of the bank holding company or any of its subsidi­
aries serves as an officer, director or employee of
the client [bank] except where such interlocking
relationships are or would be permitted by section
212.3(g) of Regulation L; (iii) the advice is ren­
dered on an explicit fee basis without regard to
correspondent balances maintained by the client
[bank] at any subsidiary bank of the bank holding
company; and (iv) disclosure is made to each
potential client [bank] of (a) the names of all banks
that are affiliates of the consulting company, and
(b) the names of all existing client [banks] located
in the same market area(s) as the client [bank].
Further, in providing management consulting advice
to commercial banks, bank holding companies are not
authorized to perform tasks or operations or provide
services to clients either on a daily or continuing basis,
except as is necessary to instruct the client on how to
perform such services for itself.
Section 4 (c)(8 ) of the Bank Holding Company Act
provides that a bank holding company may, with Board
approval, acquire “shares of any company the activities
of which the Board after due notice and opportunity
for hearing has determined (by order or regulation) to
be so closely related to banking or managing or con­
trolling banks as to be a proper incident thereto." The
Applicant believes that the proposed activity is so closely
related to banking as to be a proper incident thereto.
In connection with this application, the Board will
consider amending Regulation Y (12 CFR 225.4(a))
to add the activity of providing management consulting
advice to nonaffiliated savings banks to the list of activi­
ties that the Board has previously determined to be
permissible for bank holding companies.
Concurrently with that question, the Board will also
consider the separate question of amending Regulation




Y (12 CFR "§225.4(a)) to add the activity of providing
management consulting advice to nonaffiliated, deposi­
tory-type, financial institutions to the list of those
permissible activities specified in §225.4(a) of Regula­
tion Y. Such institutions would include: savings banks
(mutual or stock), savings and loan or building and
loan associations (mutual or stock), credit unions,
industrial banks, Morris Plan banks, cooperative banks,
industrial loan companies and similar institutions.
Interested persons may express their views on the
questions of whether providing management consulting
advice to (1) nonaffiliated savings banks; or (2) non­
affiliated, depository-type, financial institutions is “so
closely related to banking or managing or controlling
banks as to be a proper incident thereto" within the
meaning of section 4(c) (8).
Interested persons may also express their views on
the question of whether consummation of the proposal
by Worcester Bancorp can “reasonably be expected to
produce benefits to the public, such as greater con­
venience, increased competition, or gains in efficiency,
that outweigh possible adverse effects, such as undue
concentration of resources, decreased or unfair compe­
tition, conflicts of interests, or unsound banking prac­
tices.”
Any requests for a hearing on these questions should
be accompanied by a statement summarizing the evidence
the person requesting the hearing proposes to submit or
to elicit at the hearing and a statement of the reasons
why this matter should not be resolved without a
hearing.
The application by Worcester Bancorp may be in­
spected at the offices of the Board of Governors or at the
Federal Reserve Bank of Boston. Expressions of views
received by the Board may be inspected at the offices
of the Board of Governors.
Any views or requests for hearing should be sub­
mitted in writing and received by the Secretary, Board
of Governors of the Federal Reserve System, Washing­
ton, D.C. 20551, not later than September 8, 1976.