Full text of Federal Reserve Bank of New York Circulars : 8317. Proposed Amendment to Regulation Y

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FED ER A L RESERVE BANK
O F N EW YORK
No. 8 3 1 7 1
April 7, 1978
J
[Circular

PROPOSED AMENDMENT TO REGULATION Y
Proposal To Permit Bank Holding Companies
To Act as an Insurance Agent or Broker for Certain Types of Insurance
T o A l l B a n k H o ld in g C o m p a n ies, an d O th e r s C on cern ed,
in the S e c o n d F e d e r a l R e s e r v e D i s t r i c t:

Following is the text of a statement issued by the Board of Governors of the Federal Reserve
System:
The Board of Governors of the Federal Reserve System today [March so, 1978] proposed a revision of
the portion of its Regulation Y (Bank Holding Companies) concerned with sale of insurance, to conform to
court decisions.
The Board requested comment by May 1, 1978.
The revised section of Regulation Y (§225.4(a) (9 )) would permit bank holding companies to act as
an insurance agent or broker for the following types of insurance in or adjacent to offices where the bank hold­
ing company transacts other business :
—Any insurance for the holding company’s banking subsidiary.
—Any insurance that
(a) is directly related to an extension of credit by a bank or by a bank-related firm that is per­
missible under the regulation, or
(b) is directly related to the provision of other financial services by a bank or permissible bankrelated firm.
This, in accordance with recent court decisions, would eliminate from the types of insurance bank holding
companies can sell (1) insurance for themselves and for nonbank subsidiaries (limiting them to the sale of
insurance for their subsidiary banks), and (2) “convenience” insurance (insurance of any type provided for
the customer’s convenience).
The court also directed the Board to reconsider the provision of Regulation Y authorizing bank holding
companies or their subsidiaries to sell any insurance in a community with no more than 5,000 population.
The Board will reconsider this matter in the near future.

Printed below is the text of the Board’s proposal. Comments should be submitted by May 1,
1978, and may be sent to our Domestic Banking Applications Department.
P aul A. V olcker,

President.
[Regulation Y ; Docket No. R-0050]
BANK HOLDING COMPANIES
A G E N C Y : Board of Governors of the Federal Reserve
System.
A C T IO N : Proposed Rule.
S U M M A R Y : As a result of a series of decisions by
the U.S. Court of Appeals for the Fifth Circuit, Ala­
bama Association of Insurance Agents, Inc. v. Board
of Governors of the Federal Reserve System, 533 F.2d
224 (5th Cir. 1976) ; rehearing denied, 558 F.2d729 (5th
Cir. 1977) ; cert, denied 46 U SLW 3539 (No. 77-668,




February 27, 1978) the Board’s regulation relating to
permissible insurance agency activities that bank hold­
ing companies may engage in (12 C.F.R. §225.4(a) (9 ))
adopted in 1971, pursuant to §4(c )(8 ) of the Bank
Holding Company Act of 1956, as amended (12 U.S.C.
§1843(c)(8)) (the “Act” ), has been upheld in part,
invalidated in part, and remanded in part. To conform
its outstanding regulation with the decision of the U.S.
Court of Appeals for the Fifth Circuit, the Board pro­
poses to delete from its regulation those portions that
( over )

were invalidated by the Court. The Board will consider
in the near future instituting separate rulemaking pro­
ceedings with respect to those portions of the regulation
that were remanded to the Board for further consider­
ation.
D A T E : Comments must be received on or before May
1, 1978.
A D D R E S S : Secretary, Board of Governors of the Fed­
eral Reserve System, Washington, D.C. 20551. All ma­
terial submitted should include the docket number
R-0050.
FO R F U R T H E R IN F O R M A T IO N C O N TA C T:
Robert E. Mannion, Associate General Counsel, Board
of Governors of the Federal Reserve System, Washing­
ton, D.C. 20551 ((202) 452-3274), or Richard W hit­
ing, Attorney, Board of Governors of the Federal Re­
serve System, Washington, D.C. 20551 ((202) 4523786).
S U P P L E M E N T A R Y IN F O R M A T IO N : The Fifth
Circuit Court of Appeals declared invalid the portion of
12 C.F.R. §225.4(a) (9) (i) that authorized bank hold­
ing companies to act as agents for the sale of insurance
for themselves and for their nonbank subsidiaries. Ac­
cordingly, the Board proposes to rephrase that portion
of the regulation to permit bank holding companies to
act as agents only for the sale of insurance for their
subsidiary banks.
The Court also found that 12 C.F.R. §225.4(a)(9)
(ii)(c ) as drafted by the Board was too broad in its
scope because it imposed no conditions upon bank hold­
ing companies or their affiliates that the insurance they
sold relate in any way to banking. While recognizing
that the sale of certain types of “convenience” insurance
might be closely related to banking, the Court neverthe­
less found the Board’s regulation invalid. Accordingly,
the Board proposes to delete 12 C.F.R. §225.4(a)(9)
( ii) (c) from its regulation.
The Court also remanded 12 C.F.R. §225.4(a) (9)
(iii) (a) to the Board for further findings and recon­
sideration. The Board will consider whether to repro­
pose this activity in a separate rulemaking proceeding
in the future.




To accomplish the above changes, it is proposed that
§225.4(a) (9) (i) and (ii) of the regulation be amended
to read as follows:
(9) acting as insurance agent or broker in offices
at which the holding company or its subsidiaries are
otherwise engaged in business (or in an office adja­
cent thereto) with respect to the following types of
insurance:
( i) Any insurance for the holding company’s bank­
ing subsidiaries;
(ii)
Any insurance that (a) is directly related to an
extension of credit by a bank or bank-related firm of
the kind described in this regulation, or (b) is di­
rectly related to the provision of other financial serv­
ices by a bank or such a bank-related firm.

To aid in the consideration of these matters by the
Board, interested persons are invited to submit relevant
data, comments, views, or arguments. Any requests for
a hearing on this matter should be accompanied by a
statement summarizing the evidence the person request­
ing 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.
Any views or requests for a hearing should be sub­
mitted in writing to the Secretary, Board of Governors
of the Federal Reserve System, Washington, D.C.
20551, to be received not later than May 1, 1978. All
material submitted should include the docket number
R-0050. All views expressed in written comments on
the proposal and received by that date will be considered
by the Board. Such material will be made available for
inspection and copying upon request, except as pro­
vided in the Board’s Rules Regarding Availability of
Information (12 C.F.R. Part 261).
By order of the Board of Governors, March 30, 1978.