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FEDERAL RESERVE BANK OF NEW YORK Circular No. 9198 December 2,1981 REGULATION Y Amendment to Permit the Issuance of Travelers Checks by Bank Holding Companies To All Bank Holding Companies, and Others Concerned, in the Second Federal Reserve District: T he B oard o f G overnors o f the Federal Reserve System has am ended its Regulation Y, “ B ank H olding C om panies and C hange in Bank C o n tro l,” in order to include the issuance o f travelers checks on the list o f non b an k activities generally perm issible for bank holding com panies. Enclosed is a copy o f the am endm ent, effective D ecem ber 21, 1981. Questions m ay be directed to our Dom estic Banking A pplications D epartm ent (Tel. N o. 212-791-5861). ANTHONY M. SOLOMON, President. Board of Governors of the Federal Reserve System BANK HOLDING COMPANIES AND CHANGE IN BANK CONTROL AMENDMENT TO REGULATION Y (effective December 21, 1981) ISSUANCE OF TRAVELERS CHECKS AGENCY: Board o f Governors o f th e F ed er a l R eserve System . ACTION: F in a l r u le . SUMMARY: The Board has adopted a f i n a l r u le as proposed on June 1 8 , 1981, th a t adds the issu a n c e o f t r a v e le r s ch eck s to th e l i s t o f nonbank a c t i v i t i e s p e r m is s ib le for bank h o ld in g com panies. EFFECTIVE DATE: December 2 1 , 1981. FOR FURTHER INFORMATION CONTACT: R ichard W h itin g , S en io r A tto rn ey (2 0 2 /4 5 2 3 7 7 9 ), or Susan W einberg, A ttorn ey (2 0 2 /4 5 2 -3 7 0 7 ), L egal D iv is io n , or S id n ey S u ssan , Manager, D iv is io n o f Banking S u p e r v isio n and R eg u la tio n (2 0 2 /4 5 2 -2 8 1 8 ), Board o f Governors o f the F ed era l R eserve System , W ashington, D.C. 20551. SUPPLEMENTARY INFORMATION: S e c tio n 4 ( c ) ( 8 ) o f the Bank H olding Company A c t, 12 U .S.C . § 1 8 4 3 ( c ) ( 8 ) , s t a t e s th a t bank h o ld in g com panies may engage in th ose a c t i v i t i e s th e Board has determ ined (by order or r e g u la tio n ) to be so c l o s e l y r e la t e d to banking or managing and c o n t r o llin g banks as to be a proper in c id e n t th e r e to ." 12 U .S .C . § 1 8 4 3 ( c ) ( 8 ) I n d eterm in in g whether the issu a n c e o f t r a v e le r s ch eck s i s " c lo s e ly r e la te d " t o banking the Board has taken in t o c o n s id e r a tio n th e g u id e lin e s s t a t e d by th e Court in N a tio n a l C ourier A s s o c ia tio n v . Board o f Governors o f th e F ed era l R eserve System , 516 F .2d 1229 (D.C. C ir . 1 9 7 5 ): (1) Banks g e n e r a lly have in f a c t provid ed th e proposed s e r v i c e s . (2) Banks g e n e r a lly p ro v id e s e r v ic e s th a t are o p e r a t io n a lly or f u n c t io n a lly so s im ila r to the proposed s e r v ic e as to equip them p a r t ic u la r ly w e ll to p ro v id e th e proposed s e r v ic e . 1 / In Investm ent Company I n s t i t u t e v . Board o f Governors o f the F ed er a l R eserve System , 101 S . C t. 973 (1 9 8 1 ), th e Court s t a t e d t h a t , " ( t) h e B oard 's d eterm in a tio n o f what a c t i v i t i e s are ' c l o s e l y r e la t e d ' t o banking i s e n t i t l e d to the g r e a t e s t d e fe r e n c e * . [Enc. Cir. No. 9198] For this Regulation to be complete, retain: 1) Regulation Y pamphlet, as amended effective April 5, 1978. 2) Rescission of part of Regulation Y, effective June 14, 1979. 3) Amendments effective January 1, 1979, March 10, 1979, April 2, 1979, October 24, 1979, December 5, 1979, December 31, 1980, January 3, 1981, January 7, 1981, and September 1, 1981. 4) This slip sheet. (3) Banks g e n e r a lly p ro v id e s e r v ic e s th a t are so in t e g r a l ly r e la t e d to th e proposed s e r v ic e s as to r e q u ir e t h e ir pro v i s i o n in a s p e c ia l iz e d form. On a number o f o c c a s io n s th e Board by order has found the co n d u ct o f t h is a c t i v i t y by a p a r t ic u la r bank h o ld in g company to be " c lo s e ly r e la te d " to b an k in g. F i r s t Maryland C o rp o ra tio n , 67 F ed era l R eserve B u l l e t i n 579; S e a f i r s t C o r p o r a tio n , 67 F ed era l R eserve B u lle t in 517 (1 9 8 1 ); The Chase Manhattan C o rp o ra tio n , 66 F ed era l R eserve B u lle t in 937 (1 9 7 9 ); C it ic o r p , 65 F ed er a l R eserve B u ll e t in 666 (1979); R ep ub lic o f Texas C o r p o r a tio n , 62 F ed era l R eserve B u ll e t in 630 (1 9 7 6 ); and BankAmerica C o r p o r a tio n , 59 F ed er a l R eserve B u ll e t in 544 (1 9 7 3 ). In co n n ectio n w ith i t s ap p roval o f th e s e a p p lic a t io n s th e Board noted th a t banks h i s t o r i c a l l y have engaged in th e iss u a n c e o f t r a v e le r s ch eck s as w e ll a s in th e issu a n c e o f o th e r , s im ila r payment in str u m e n ts. A c c o r d in g ly , th e Board concluded th a t th e iss u a n c e o f t r a v e le r s ch eck s by each o f th e se bank h o ld in g com panies was " c lo s e ly r e la te d " to banking. In June 1981, th e Board p u b lish e d for comment a p ro p o sa l to add th e is su a n c e o f t r a v e le r s ch eck s to th e p r o v is io n s o f R eg u la tio n Y. The comments r e c e iv e d in resp o n se to th e B o a rd 's n o t ic e o f proposed rulem aking were overw h elm ingly f a v o r a b le . These comments c i t e d both th e h i s t o r i c a l p rece d e n t fo r p e r m ittin g banks and bank h o ld in g companies t o engage in the a c t i v i t y and th e s i m i l a r i t y o f the issu a n c e o f t r a v e le r s ch eck s to the iss u a n c e o f oth er in stru m en ts such as c a s h ie r s ch eck s, l e t t e r s o f c r e d it and s ig h t d r a f t s . In a d d itio n , i t was fr e q u e n tly s t a t e d th a t p e r m ittin g bank h o ld in g com panies to is s u e t r a v e le r s checks would rea so n a b ly be l i k e l y to r e s u l t in p u b lic b e n e f i t s . The t r a v e le r s check in d u str y i s h ig h ly co n c e n tr a te d and i t appears th a t a d d itio n a l e n tr a n ts in t o the market may have some p r© com p etitive e f f e c t s . However, one commenter o b je c te d to ad op tion o f the p ro p o sa l and req u ested a h ea rin g on th e m a tter. The Board has review ed th e comments opposing ad option o f the p ro p o sa l and has found them to be w ith o u t m e r it. Thus, the Board h as d en ied th e commenter*s r e q u e s t fo r a h e a r in g . A c c o r d in g ly , th e Board h as found the iss u a n c e o f t r a v e le r s ch eck s to be " c lo s e ly rela ted " to banking w ith in the meaning o f the BHC A ct and has adopted a f i n a l r u le , a u th o r iz in g bank h o ld in g com panies to is s u e t r a v e le r s c h e c k s, s u b je c t t o Board approval o f a s p e c i f i c p r o p o s a l. For th e p u rp oses o f 5 U .S .C . § 6 0 5(b )(T h e R egu latory F l e x i b i l i t y A c t ) , the Board c e r t i f i e s th a t t h i s r u le w i l l n ot have a s i g n i f i c a n t econom ic im pact on a s u b s t a n t ia l number o f sm all e n t i t i e s . In deed , t h i s r u le sh ould f a c i l i t a t e th e a p p lic a t io n p r o c e ss for any company w ish in g to engage in th e a c t i v i t y . -2 - T his a c tio n i s taken pursuant to th e B o a rd 's a u t h o r it y under s e c t io n s 4 ( c ) ( 8 ) and 5(b) o f the Bank H olding Company A c t, 12 U .S .C . §§ 1 8 4 3 (c )(8 ) and 1 8 4 4 (b ). In order to implement t h i s r u le , s e c t io n 2 2 5 . 4 ( a ) (13) o f the B o a rd 's R eg u la tio n Y i s r e v is e d to read as f o llo w s : S e c tio n 225.4-NONBANKING ACTIVITIES (a) *** (13) The s a le a t r e t a i l o f money o rd ers having a fa c e v a lu e o f not more than $1,000 and the s a l e o f U. S. S a v in g s Bonds and th e is s u a n c e and th e s a l e o f t r a v e le r s ch eck s. * * * Board o f Governors o f the F ed er a l R eserve System , November 1 8 , 1981. ( s ig n e d W illia m W. W ile s ) W illiam W. W iles S e c r e ta r y o f the Board [SEAL] -3 -
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