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FE D E R A L R E S E R V E B A N K
OF NEW YORK
[
Circular No. 9180 ~J
November 4, 1981 J
PROPOSED AMENDMENT TO REGULATION Y
Management Consulting Advice to Nonbank Depository Institutions
To All Bank Holding Companies, and Others Concerned,
in the Second Federal Reserve District:
The following statement was issued October 29 by the Board of Governors of the Federal Reserve
System:
The Federal Reserve Board today asked for public comment on a proposal to add the provision of
management consulting advice to unaffiliated nonbank depository institutions to the activities permissible for
bank holding companies.
The Board requested comment by December 30, 1981.
Under the proposal management consulting advice could be offered to institutions such as savings and
loan associations, mutual savings banks and other types of depository institutions that are not commercial
banks. At present, the Board’s rules permit bank holding companies to provide management consulting advice
only to banks.
The Board’s proposal was made in connection with an application by BankAmerica Corporation to
engage in the activity proposed.
At the same time, the Board proposed to permit management interlocks, under certain conditions,
between bank holding companies and depository institutions to which they provide management consulting.
Printed on the following pages is the text of the Board’s proposal. Comments thereon should be
submitted by December 30, 1981, and may be sent to our Domestic Banking Applications Department.
A n th o n y
M.
S olom on,
President.
FEDERAL RESERVE SYSTEM
[12 CFR PART 225]
R e g u la tio n Y
[D ocket No. R-0369]
BANK HOLDING COMPANY ACTIVITIES
N o tice o f P roposed Rulem aking
and A p p lic a tio n by BankAmerica C o rp o ra tio n
to P ro v id e Management C o n su ltin g S e rv ic e s to
Nonbank D e p o sito ry I n s t i t u t i o n s
AGENCY: B oard o f G overnors of th e F e d e ra l R eserve System .
ACTION: P ro p o sed R ulem aking
SUMMARY: The Board o f G overnors of the F e d e ra l R eserve System i s p ro p o sin g
an amendment to i t s R e g u la tio n Y in c o n n e c tio n w ith an a p p lic a tio n by
BankAmerica C o rp o ra tio n , San F ra n c is c o , C a lif o r n ia , to engage in o f f e r in g
management c o n s u ltin g a d v ic e to u n a f f ilia te d nonbank d e p o s ito ry i n s t i
t u t i o n s . These i n s t i t u t i o n s would in c lu d e sa v in g s and lo a n a s s o c ia tio n s ,
m utual sa v in g s b an k s, c r e d i t u n io n s, i n d u s t r i a l b an k s, M o rris P lan
b a n k s, c o o p e ra tiv e b an k s, and i n d u s t r i a l lo an com panies. The proposed
a c t i v i t i e s would in c lu d e , b u t n o t be lim ite d to , th e s e l l i n g to nona f f i l i a t e d nonbank d e p o s ito ry i n s t i t u t i o n s of s e rv ic e s which r e l a t e
to bank o p e ra tio n s and m a rk e tin g , bank p e rso n n e l o p e ra tio n s , and con
sumer f in a n c ia l in fo rm a tio n . The Board a ls o p ro p o ses to p e rm it bank
h o ld in g com panies to have management in te r lo c k s w ith d e p o s ito ry i n s t i
tu tio n s to w hich th e y p ro v id e management c o n s u ltin g s e r v ic e s i f such
in te r lo c k s would be p e rm is s ib le under e x c e p tio n s c o n ta in e d in R e g u la tio n L
th a t ap p ly to i n s t i t u t i o n s in need o f management or o p e ra tin g e x p e r tis e .
I n te r e s te d p e rso n s a re in v ite d to su b m it w r itte n d a ta , v ie w s, or argum ents
-re g a rd in g th e pro p o sed amendments fo r a p e rio d o f 60 d a y s.
DATE: Comments m ust be re c e iv e d by December 30, 1981.
ADDRESS: Comments sh o u ld in c lu d e a re fe re n c e to D ocket No. R-0369 and
sh o u ld be m ailed to th e S e c r e ta r y , B oard o f G overnors o f the F e d e ra l
R eserv e S ystem , W ashington, D .C. 20551, o r be d e liv e re d on weekdays
to Room B -2223, 20th and C o n s titu tio n A venue, N.W ., W ashington, D .C .,
betw een 8:45 a.m . and 5:1 5 p.m . Any comments re c e iv e d may be in sp e c te d
on w eekdays in Room B-1122 betw een 8:45 a.m . and 5:15 p.m . The a p p lic a
tio n by BankAmerica C o rp o ra tio n 'm ay be in s p e c te d a t th e o f f ic e s of the
B oard o r a t th e F e d e ra l R eserve Bank o f San F ra n c is c o .
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FOR FURTHER INFORMATION CONTACT: M ichael E. B le ie r , A s s is ta n t G en eral
C o u n se l, (2 02)452-3721, o r M elan ie L. F e in , A tto rn e y , (202)452-3594,
L egal D iv is io n , Board o f G overnors o f the F e d e ra l R eserve System .
SUPPLEMENTAL INFORMATION: S e c tio n 4 (c )(8 ) o f th e Bank H olding Company
A ct (12 U .S .C . 1 8 4 3 (c )(8 )) p e rm its bank h o ld in g com panies to ho ld sh a re s
o f "any company th e a c t i v i t i e s o f which th e B oard, a f t e r due n o tic e
and o p p o rtu n ity fo r h e a rin g , d e te rm in e s (by o rd e r or re g u la tio n ) to
be so c lo s e ly r e la te d to banking or m anaging or c o n tr o llin g banks as
to be a p ro p er in c id e n t th e r e to ." The B o a rd 's R e g u la tio n Y s p e c if ie s
a c t i v i t i e s th a t i t has d eterm in ed to be c lo s e ly r e la te d to banking and
th u s p e rm is s ib le fo r bank h o ld in g com panies under s e c tio n 4(c) (8 ).
(12 C .F .R . 2 2 5 .4 ( a ) ) . In d e te rm in in g w hether a p a r tic u la r a c t i v i t y
i s a p ro p er in c id e n t to banking or m anaging or c o n tr o llin g b an k s, th e
B oard i s re q u ire d to c o n sid e r "w hether i t s perform ance by an a f f i l i a t e
o f a h o ld in g company can re a so n a b ly be ex p ected to produce b e n e f its
to th e p u b lic , such as g r e a te r co n v en ien ce, in c re a s e d c o m p e titio n , or
g a in s in e f f ic ie n c y , th a t outw eigh p o s s ib le a d v e rse e f f e c t s , such as
undue c o n c e n tra tio n o f re s o u rc e s , d e c re a se d or u n fa ir c o m p e titio n ,
c o n f l i c t s of i n t e r e s t s , o r unsound banking p r a c tic e s ." The Board con
s id e r s w hether an a c t i v i t y can re a so n a b ly be ex p ected to produce p u b lic
b e n e f its in c o n n e c tio n w ith in d iv id u a l p ro p o s a ls by bank h o ld in g com panies
to engage in th e a c t i v i t y .
S e c tio n 2 2 5 .4 ( a ) (12) o f R e g u la tio n Y p e rm its bank h o ld in g
com panies to p ro v id e management c o n s u ltin g s e r v ic e s to n o n a f f ilia te d
b an k s. The Board has s ta te d in a p u b lish e d in te r p r e t a t i o n th a t such
a c t i v i t i e s sh o u ld be p ro v id e d "o n ly to an i n s t i t u t i o n th a t bo th a c c e p ts
d e p o s its th a t th e d e p o s ito r has a le g a l r ig h t to w ithdraw on demand
and engages in th e b u s in e s s of making com m ercial lo a n s ." 12 C .F .R .
2 2 5 .1 3 1 . The Board re g a rd s t h i s in te r p r e ta tio n as p r e s e n tly e x c lu d in g
m ost t h r i f t i n s t i t u t i o n s .
S e c tio n 2 2 5 .4 (a) o f R e g u la tio n Y p ro v id e s th a t any bank h o ld in g
company th a t i s of th e o p in io n th a t a c t i v i t i e s o th e r th an th o se in c lu d e d
in th e l i s t of p e rm is s ib le a c t i v i t i e s a re c lo s e ly r e la te d to banking
o r m anaging o r c o n tr o llin g banks may f i l e an a p p lic a tio n to engage in
th e a c t i v i t y . T hat s e c tio n f u r th e r p ro v id e s th a t th e Board w ill p u b lis h
n o tic e o f the a p p lic a tio n in th e F e d e ra l R e g is te r " i f i t b e lie v e s th a t
th e r e i s a re a s o n a b le b a s is fo r th e h o ld in g com pany's o p in io n ."
BankAmerica C o rp o ra tio n , San F ra n c is c o , C a lif o r n ia ("B ankA m erica"),
has p ro p o sed to o ffe r management c o n s u ltin g s e r v ic e s to nonbank d e p o s ito ry
i n s t i t u t i o n s . These s e rv ic e s would be p ro v id e d n atio n w id e th ro u g h
B ankA m erica' s s u b s id ia r y , BA Cheque C o rp o ra tio n , San F ra n c is c o , C a lif o r n ia .
BankAmerica a s s e r ts th a t th e p ro p o sed a c t i v i t y i s c lo s e ly r e la te d to
banking or m anaging or c o n tr o llin g banks s in c e banks t r a d i t i o n a l l y have
p ro v id e d management c o n s u ltin g s e rv ic e s to n o n a f f ilia te d b an k s. BankAmerica
a ls o s t a t e s th a t banks t r a d i t i o n a l l y have p ro v id ed s p e c ia liz e d s e rv ic e s
-3 -
to nonbank d e p o s ito ry i n s t i t u t i o n s . Based on a l l the f a c ts of re c o rd ,
in c lu d in g th e a s s e r tio n s p u t f o r th by BankAmerica and in view of the
pow ers of t h r i f t i n s t i t u t i o n s , th e Board has concluded th a t a re a so n a b le
b a s is e x is ts fo r B ankA m erica' s o p in io n th a t th e o f f e r in g o f the proposed
a c t i v i t y i s " c lo s e ly r e la te d to banking or m anaging or c o n tr o llin g
b a n k s." A c c o rd in g ly , t h i s n o tic e o f BankA m erica' s a p p lic a tio n i s being
p u b lis h e d in th e F e d e ra l R e g is te r .
In c o n ju n c tio n w ith BankA m erica' s a p p lic a tio n , th e Board i s
c o n s id e rin g an amendment to s e c tio n 2 2 5 .4 (a) o f R e g u la tio n Y to add
th e p ro p o sed a c t i v i t y to th e l i s t o f p e rm is s ib le a c t i v i t i e s fo r bank
h o ld in g com panies. In c o n n e c tio n w ith t h i s a c tio n , th e Board a ls o i s
p ro p o sin g to amend R e g u la tio n Y to p e rm it bank h o ld in g com panies to
have common management o f f i c i a l s w ith d e p o s ito ry i n s t i t u t i o n s to which
th e y p ro v id e management c o n s u ltin g s e r v ic e s i f such in te r lo c k s would
be p e rm is s ib le under e x c e p tio n s c o n ta in e d in th e B o a rd 's R e g u la tio n L
(Management O f f ic ia l I n te r lo c k s ) t h a t ap p ly to d e p o s ito ry i n s t i t u t i o n s
in need o f management or o p e ra tin g e x p e r tis e . 12 C .F .R . § 2 1 2 .4 (b ).
R e g u la tio n Y c u r r e n tly p ro v id e s th a t bank h o ld in g com panies may n o t
have o f f i c e r s , d i r e c t o r s , o r em ployees in common w ith banks to w hich
th e y p ro v id e management c o n s u ltin g s e r v ic e s . 12 C .F .R . § 2 2 5 .4 ( a ) (1 2 )( i i ) .
The p u rp o se o f t h i s r e s t r i c t i o n i s to guard a g a in s t p o te n tia l c o n f lic ts
o f i n t e r e s t . An e x c e p tio n i s p ro v id ed when such in te r lo c k in g r e la tio n s h ip s
a re or would be p e rm itte d under th e e x c e p tio n c o n ta in e d in R e g u la tio n L
fo r banks lo c a te d in low income a re a s . T h is e x c e p tio n r e f l e c t s a d e te r
m in a tio n th a t th e b e n e f its of p ro v id in g management c o n s u ltin g s e rv ic e s
to i n s t i t u t i o n s in need o f management e x p e r tis e outw eigh any p o te n tia l
c o n f l i c t s of i n t e r e s t .
The low income e x c e p tio n was in c o rp o ra te d in to R e g u la tio n Y
a t th e same tim e th a t i t was added to R e g u la tio n L. S ince a d o p tio n
o f t h i s e x c e p tio n , o th e r e x c e p tio n s have been added to R e g u la tio n L.
These in c lu d e e x c e p tio n s fo r d e p o s ito ry o r g a n iz a tio n s c o n tr o lle d or
m anaged by women or m in o r itie s , new ly c h a rte re d o r g a n iz a tio n s , and
o rg a n iz a tio n s fa c in g c o n d itio n s en d an g erin g s a f e ty or soundness or
d is r u p tiv e lo s s of management o f f i c i a l s due to th e p r o h ib itio n s in
R e g u la tio n L. 12 C .F .R . § 2 1 2 .4 (b ). The e x c e p tio n s may be g ra n te d
by th e a p p ro p ria te f e d e r a l s u p e rv is o ry agency in in d iv id u a l c a se s on
th e b a s is of a d e te rm in a tio n th a t th e e x c e p tio n i s n e c e ssa ry to p ro v id e
m anagement or o p e ra tin g e x p e r tis e to th e re q u e s tin g i n s t i t u t i o n . These
R e g u la tio n L e x c e p tio n s have n o t y e t been in c o rp o ra te d in to th e Regu
l a t i o n Y p ro v is io n th a t p r o h ib its in te r lo c k s betw een bank h o ld in g com panies
and c l i e n t i n s t i t u t i o n s to which th e y p ro v id e management c o n s u ltin g
s e r v ic e s . The B oard i s p ro p o sin g to in c o rp o ra te them a t t h i s tim e s in c e
th e p u b lic i n t e r e s t th ey se rv e in R e g u la tio n L would s im ila r ly be se rv e d
by t h e i r in c lu s io n in R e g u la tio n Y. The pro p o sed amendment in t h i s
re g a rd u ses th e te rm in o lo g y o f the D e p o sito ry I n s t i t u t i o n Management
I n te r lo c k s A ct of 1978, 12 U .S .C . § 3201 e t s e q ., which r e f e r s to i n t e r -
-4-
lo c k s by "management o f f i c i a l s , " in s te a d o f the lan g u ag e in s e c tio n 8
o f the C la y to n A c t, which was su p ersed ed by th e I n te r lo c k s A c t, w hich
r e f e r s to " o f f i c e r , d i r e c t o r , o r em ployee" in te r lo c k s .
I n te r e s te d p e rso n s a re in v ite d to comment on w hether th e
p ro p o sed new management c o n s u ltin g a c t i v i t y i s " c lo s e ly r e la te d to
banking or m anaging or c o n tr o llin g banks" and w hether consum m ation o f
B ankA m erica' s p ro p o sa l to engage in th e a c t i v i t y can " re a so n a b ly be
e x p e c te d to produce b e n e f its to th e p u b lic , such as g r e a te r co n v en ien ce,
in c re a s e d c o m p e titio n , o r g a in s in e f f ic ie n c y , th a t outw eigh p o s s ib le
a d v e rse e f f e c t s , such as undue c o n c e n tra tio n o f re s o u rc e s , d e c re a se d
o r u n fa ir c o m p e titio n , c o n f lic ts of i n t e r e s t s , or unsound banking p r a c tic e s ."
Comment a ls o i s re q u e ste d on th e p ro p o sa l to in c lu d e th e R e g u la tio n L
e x c e p tio n s in th e R e g u la tio n Y r e s t r i c t i o n re g a rd in g in te r lo c k s betw een
c o n s u ltin g com panies and th e i r c l i e n t d e p o s ito ry i n s t i t u t i o n s . Any
r e q u e s t fo r a h e a rin g on th e s e q u e s tio n s m ust be accom panied by a s t a t e
ment of th e re a so n s why a w r itte n p r e s e n ta tio n would n o t s u f f ic e in
l i e u o f a h e a rin g , id e n tif y in g s p e c i f i c a l l y any q u e s tio n s of f a c t th a t
a re in d is p u te , sum m arizing th e ev id en ce th a t would be p re s e n te d a t
a h e a rin g , and in d ic a tin g how th e p a rty commenting w ould be ag g rie v e d
by a p p ro v a l of the p ro p o s a l.
P u rsu an t to s e c tio n 605(b) o f the R e g u la to ry F l e x i b i l i t y Act
(Pub. L. No. 9 6 -3 5 4 ); 5 U .S .C . 601 e t se q . ) , th e Board o f G overnors
o f the F e d e ra l R eserve System c e r t i f i e s th a t th e pro p o sed amendment,
i f a d o p te d , w i l l n o t have a s i g n if ic a n t econom ic im pact on a s u b s ta n tia l
number of sm all e n t i t i e s th a t would be s u b je c t to th e r e g u la tio n . The
p ro p o sed amendment would l i b e r a l i z e th e e x is tin g r e g u la tio n s and does
n o t have any p a r tic u la r e f f e c t on sm a ll e n t i t i e s th a t would be s u b je c t
th e r e to .
A cc o rd in g ly , p u rs u a n t to i t s a u th o r ity under s e c tio n 5(b)
o f th e Bank H olding Company A ct, 12 U .S .C . § 1 8 4 4 (b ), th e B oard o f
G overnors of the F e d e ra l R eserve System p ro p o ses to amend 12 C .F .R .
P a rt 225, a s fo llo w s:
12 C .F .R . P a rt 225 i s p ro p o sed to be amended as fo llo w s:
1. The a u th o r ity c i t a t i o n fo r P a rt 225 re a d s as fo llo w s:
A u th o rity .
o th e rw ise n o te d .
S ec. 5, 70 S t a t . 137; 12 U .S .C . 1844, u n le s s
2. S e c tio n 225.4 i s amended by r e v is in g p arag rap h ( a ) (12)
to re a d as fo llo w s:
2 2 5 .4 —N onbanking A c tiv itie s
(a) * * *
r
-5 -
(12) p ro v id in g management c o n s u ltin g a d v ic e -^ to n o n a f f ilia te d
bank and nonbank d e p o s ito ry i n s t i t u t i o n s , in c lu d in g com m ercial
b an k s, sa v in g s and lo a n a s s o c ia tio n s , m utual sav in g s b an k s,
c r e d i t u n io n s, in d u s t r i a l b an k s, M o rris P lan b an k s, c o o p e ra tiv e
b an k s, and i n d u s t r i a l lo an com panies, P ro v id ed t h a t , (i) n e ith e r
th e bank h o ld in g company nor any o f i t s s u b s id ia r ie s cwn or
c o n tr o l, d i r e c t l y or i n d i r e c t l y , any e q u ity s e c u r i t i e s in
th e c l i e n t i n s t i t u t i o n ; ( i i ) no management o f f i c i a l , a s d e fin e d
in 12 CFR 2 1 2 .2 (h ), o f the bank h o ld in g company or any o f
i t s s u b s id ia r ie s se rv e s as a management o f f i c i a l of th e c l i e n t
i n s t i t u t i o n e x cep t where such in te r lo c k in g r e la tio n s h ip s a re
o r w ould be p e rm itte d under 12 CFR 2 1 2 .4 (b ); ( i i i ) th e ad v ice
i s re n d e re d on an e x p l i c i t fe e b a s is w ith o u t re g a rd to c o r r e
spo n d en t b a la n c e s m a in ta in e d by th e c l i e n t i n s t i t u t i o n a t
any d e p o s ito ry i n s t i t u t i o n s u b s id ia r y o f th e bank h o ld in g
company; and (iv ) d is c lo s u r e i s made to each p o te n tia l c l i e n t
i n s t i t u t i o n o f (a) th e names of a l l d e p o s ito ry i n s t i t u t i o n s
which a re a f f i l i a t e s of the c o n s u ltin g company, and (b) th e
names of a l l e x is tin g c l i e n t in s titu tio n s ^ J o c a te d in th e same
m ark et a re a (s ) a s the c l i e n t i n s t i t u t i o n . — '
Board o f G overnors of th e F e d e ra l R eserve S ystem , e f f e c tiv e O ctober 28, 1981.
(sig n ed ) W illiam W. W iles
W illiam W. W iles
S e c re ta ry o f th e Board
[SEAL]*
* * * * *
9 / In p erfo rm in g t h i s a c t i v i t y bank h o ld in g com panies a re n o t a u th o riz e d
to perform ta s k s or o p e ra tio n s or p ro v id e s e r v ic e s to c l i e n t i n s t i t u t i o n s
e ith e r on a d a ily or c o n tin u in g b a s is , e x c e p t as s h a ll be n e c e ssa ry
to i n s t r u c t th e c l i e n t i n s t i t u t i o n on how to perform such s e rv ic e s fo r
i t s e l f . See a ls o th e B o a rd 's in te r p r e t a t i o n o f bank management con
s u ltin g ad v ice (12 CFR 2 2 5 .1 3 1 ). T h is in te r p r e ta tio n s h a ll ap p ly to
th e perform ance o f management c o n s u ltin g s e r v ic e s fo r nonbank d e p o s ito ry
i n s t i t u t i o n s as w e ll as fo r com m ercial b an k s.
1 0 / A p p lic a n ts to engage de novo in p ro v id in g management c o n s u ltin g
a d v ice to n o n a f f ilia te d bank and nonbank d e p o s ito ry i n s t i t u t i o n s sho u ld
be f i l e d in acco rd an ce w ith th e p ro c e d u re s o f § 2 2 5 .4 (b ) (2) r a th e r th an
§ 2 2 5 .4 (b ) (1) o f R e g u la tio n Y.
* * * * *
@FedFRASER