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FEDERAL RESERVE BANK
OF NEW YORK
\U
7i r
[
Circular No. 9889
July 2, 1985
1
BANK H O LD IN G COM PANIES
Applications by B ankers T ru st New Y ork C orporation and
J .P . M organ & Co„ Incorporated to Engage in
C ertain Com m ercial P aper Activities
To All Bank Holding Companies, Branches and Agencies o f Foreign Banks,
and Others Concerned, in the Second Federal Reserve District:
Following is the text of a statement issued by the Board of Governors of the Federal Reserve
System:
The Federal Reserve Board has requested public comment on applications by Bankers Trust New
York Corporation and J.P. Morgan & Co. Incorporated to engage, to a limited extent, in commercial
paper advisory and placement activities consisting of acting as agent for issuers in connection with the
placement of such notes with institutional investors. The Board has not previously found the proposed
activities to be permissible for bank holding companies under the Bank Holding Company Act.
Comments should be received by July 22, 1985.
Enclosed — for bank holding companies and branches and agencies of foreign banks — is the
complete text of the Board’s notice, which will be published shortly in the Federal Register; copies
will be furnished to others upon request directed to the Circulars Division of this Bank
(Tel. No. 212-791-5216). Comments thereon should be submitted by July 22, 1985, and may be
sent to our Domestic Banking Applications Department.
E.
G e r a l d C o r r ig a n ,
President.
FEDERAL RESERVE SYSTEM
BANKERS TRUST NEW YORK CORPORATION
Proposal to Engage in Commercial Paper
Advisory and Placemen t Activities
Bankers Trust New York Corporation,
York,
has applied,
Holding
Company
pursuant
Act
section 225.23(a)(3)
to section 4(c) (8)
(12 U.S.C.
of
New York,
of the Bank
§ 1843(c) (8) )
the Board's
New
Regulation Y
and
(12 C.F.R.
§ 225.23(a) (3)), for -permission to engage in the activity of
acting as agent for
issuers of short-term promissory notes
(commonly known as commercial paper)
placement
of
such notes
with
in connection with the
institutional
investors.
In
addition to acting as agent for issuers of commercial paper,
Company
may
provide
information
to
issuers
about
market
condi tions .
Applicant would engage
through
BT
Commercial
in the activities
Corporation,
Chicago,
indirectly
Illinois
("Company"), which is a wholly-owned subsidiary of Applicant's
direct subsidiary, B.T. Leasing Services, Inc., New York, New
York.
Company
is currently
engaged
in commercial
activities on a nationwide basis at various offices
ACCOU/
United
States.
Applicant
proposes
to
expand
to it commercial
activities
performed by Applicant's
subsidiary,
lz performed
Bankers Trust Company.
in the
Company's
activities by transferring
currently being
finance
paper placement
banking
The activities would be
through Company's offices in New York, Chicago and
Los Angeles, serving customers throughout the United States.
[Ref. Cir. No. 9889]
-2-
Section 4(c) (8)
of
the
Bank
Holding
Company
Act
provides that a bank holding company may, with Board approval,
engage in any activity "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 controlling
banks as to be a proper incident thereto,,"
The Board has not
previously approved the proposed activities
for bank holding
companres„
Applicant states that the activities are so closely
related to banking or managing or controlling banks as to be a
proper incident thereto on the basis that banks engage in the
activities,
and because
the
activities
are
the
functional
equivalent of extending a short-term commercial bank loan to
customers.
Commercial paper constitutes a security for purposes
of the Glass-Steagall Act,
securities
activities
Section 20 of that Act
of
banks
from
flotation,
securities.
being
of
which
banks
restricts
and
the
third party
affiliates
of
banks0
(12 U.S.C. § 377) prohibits affiliates
"engaged
underwriting,
principally
public
sale,
or
in
the
issue,
distribution"
of
In Applicant's opinion, it would not be engaged in
such activities on the basis that the activities are limited to
acting solely as agent for the customer and would not involve a
public distribution of securities.
that
such
subsidiary,
activities
Bankers
conducted
Trust
The Board recently ruled
by
Company,
Applicant's
would
not
banking
violate
the
-3-
Glass-Steagal1 Act provisions
basis.
Statement
applicable
Concerning
to banks
Applicability
on
of
that
the
Glass-Steagall Act to the Commercial Paper Placement Activities
of Bankers Trust Company, (Press Release dated June 4, 1985).
Applicant also states that it would not be "engaged
principally"
m
such activities on the basis of a test that
would limit the amount of commercial paper placement activity
to a minor portion of the total activity conducted by Company.
Under the test stated by Applicant,
the gross revenue to be
derived from the activity would approximate not more than 5
percent of Company's total gross revenue.
Comments
permitted
by
the
are
requested
phrase
Glass-Steagall Act,
on
"engaged
the
scope
of
principally"
activity
under
the
including whether the phrase contemplates
the type of test proposed by the Applicant, which is based on a
percentage
measured
of
the
affiliate's
in terms of gross
total
revenue.
business
activities,
The Board
also seeks
comment on whether the term "engaged principally" in section 20
would
preclude
activities
a member
bank
affiliate
from
engaging
restricted by this section on a substantial
regular or non-incidental basis
and without
regard
in
and
to the
amount of other activities conducted by the affiliate.
While
the Board has decided to publish Bankers Trust's proposal for
comment,
the Board does not thereby take any position on the
"engaged
principally"
issue
under
the Glass-Steagall Act.
\
-4-
Publication of the proposal
has been ordered by the Board
solely in order to seek the views of interested persons on this
question as well as other issues raised by the application.
Interested persons may express their views on whether
the proposed activities are "so closely related to banking or
managing
or controlling
banks
as to be a proper
incident
thereto," and whether the proposal as a whole can "reasonably
be expected to produce benefits to the public, such as greater
convenience, increased competition or gains in efficiency, that
outweigh possible adverse effects, such as undue concentration
of resources,
decreased or unfair competition,
interests, or unsound banking practices."
conflicts of
Any request for a
hearing on these questions must be accompanied by a statement
of the reasons why a written presentation would not suffice in
lieu of a hearing,
identifying specifically any questions of
fact that are in dispute, summarizing the evidence that would
be presented
at a hearing,
and
indicating
how
the party
commenting would be aggrieved by approval of the proposal.
The application may be inspected at the offices of the
Board of Governors or the Federal Reserve Bank of New York.
Any views or requests for hearing should be submitted
in writing and received by William W. Wiles, Secretary, Board
-5-
of Governors of the Federal Reserve System, Washington, D.C.
20551, not later than July 22, 1985.
Board of Governors
of the Federal
Reserve
System,
June 13, 1985.
William W. Wiles
Secretary of the Board
FEDERAL RESERVE SYSTEM
J. P. MORGAN & CO. INCORPORATED
Proposal to Engage in Commercial Paper
Advisory and Placement Activities
J.P. Morgan & Co. Incorporated, New York, New York,
has applied, pursuant to section 4(c) (8) of the Bank Holding
Company Act
of
(12 U.S.C.
§ 1843(c)(8))
the Board's Regulation Y
and section 225.23(a)(3)
(12 C.F.R.
§ 225.23(a)(3)),
for
permission to engage in the activities of acting as agent for
issuers of short-term notes exempt from registration under the
Securities Act of 1933
("commercial paper").
In addition to
acting as agent for issuers of commercial paper, Company may
provide
advisory
services
to
the
issuer
information concerning market conditions,
the
preferred
assistance
investors
maturities
and
yields
in preparing brochures
summarizing
the
in
consisting
of
Company's views on
the
market,
and
to be sent to prospective
issuer's
business
and
generally
providing summary financial data.
Applicant would engage
through J.P.
Morgan
Securities
in the activities
Inc.,
New York,
indirectly
New York
("Company"), which is a wholly-owned subsidiary of Applicant's
direct subsidiary, J.P. Morgan Securities Holdings
York, New York.
and
dealing
Company is currently engaged in underwriting
in securities
that
a state
member
bank
underwrite and deal in under the Glass-Steagall Act,
U.S.
government
Inc., New
securities,
money
market
may
including
instruments
and,
-2-
through
a wholly-owned
subsidiary,
J.P.
Morgan
Finance Inc., certain municipal securities.
to expand
Company's
activities
by
Municipal
Applicant proposes
transferring
to
it the
commercial paper placement activities currently being performed
by
Applicant's
banking
Company of New York.
subsidiary,
Morgan
Guaranty
Trust
The activities would be performed through
C
Company's offices in New York, serving customers in the United
States and abroad.
Section 4(c) (8)
of
the
Bank
Holding
Company
Act
provides that a bank holding company may, with Board approval,
engage in any activity "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 controlling
banks as to be a proper incident thereto."
The Board has not
previously approved the proposed activities
for bank holding
companies.
Applicant states that the activities are so closely
related to banking or managing or controlling banks as to be a
proper incident thereto on the basis that banks engage in the
activities,
and because
the
activities
are
the
functional
equivalent of extending a short-term commercial bank loan to
customers.
Commercial paper constitutes a security for purposes
of the Glass-Steagall Act,
securities
activities
Section 20 of that Act
of
which
banks
restricts
and
the
affiliates
(12 U.S.C. § 377)
third party
of
banks.
prohibits affiliates
-3-
of
banks
from
flotation,
being
"engaged
underwriting,
securities.
public
principally
sale,
or
in
the
issue,
distribution"
of
In Applicant's opinion, it would not be engaged in
such activities on the basis that the activities are limited to
acting solely as agent for the customer and would not involve a
public distribution of securities.
The Board recently ruled
that such activities conducted by Bankers Trust Company,
state member bank,
would not violate
provisions
applicable
to banks
Concerning
Applicability
of
on
a
the Glass-Steagall Act
that
basis.
Statemen t
the Glass-Steagall
Act
to the
Commercial Paper Placement Activities of Bankers Trust Company,
(Press Release dated June 4, 1985).
Applicant also states that it would not be "engaged
principally"
in such activities on the basis of a test that
would limit the amount of commercial paper placement activity
relative to the total activity conducted by Company.
test stated by Applicant,
Under the
the gross income to be derived from
Company's commercial paper activities would not,
during
any
rolling two year period, exceed 5 percent of the gross income
of Company, measured on a consolidated basis that would include
the income derived from Company's U.S. government securities
and money market instruments business as well as the income
derived
from the municipal securities business
of Company's
subsidiary, J.P. Morgan Municipal Finance Corp.
Comments
permitted
by
the
are
phrase
Glass-Steagall Act,
requested
on
"engaged
the
scope
principally"
of
activity
under
the
including whether the phrase contemplates
-4-
the type of test proposed by the Applicant, which is based on a
percentage
measured
of
the
affiliate's
in terms of gross
total
income.
business
The
activities,
Board
also seeks
comment on whether the term "engaged principally" in section 20
would
preclude
activities
regular
a member
bank
affiliate
from
engaging
in
restricted by this section on a substantial
or non-incidental
basis
and without
regard
and
to the
amount of other activities conducted by the affiliate.
While
the Board nas decided to publish j.p. Morgan's proposal
comment,
for
the Board does not thereby take any position on the
"engaged principally"
issue under
the Glass-Steagall Act or
other issues raised by the proposal.
Interested persons may express their views on whether
the proposed activities are "so closely related to banking or
managing
or controlling
banks
as
to be
a proper
incident
thereto," and whether the proposal as a whole can "reasonably
be expected to produce benefits to the public, such as greater
convenience, increased competition or gains in efficiency, that
outweigh possible adverse effects, such as undue concentration
of resources,
decreased or unfair competition,
interests, or unsound banking practices."
conflicts of
Any request for a
hearing on these questions must be accompanied by a statement
of the reasons why a written presentation would not suffice in
lieu of a hearing,
identifying specifically any questions of
fact that are in dispute, summarizing the evidence that would
be presented
at a hearing,
and
indicating
how
the party
commenting would be aggrieved by approval of the proposal.
-5-
The application may be inspected at the offices of the
Board of Governors or the Federal Reserve Bank of New York.
Any views or requests for hearing should be submitted
in writing and received by William w. Wiles, Secretary, Board
of Governors of the Federal Reserve System, Washington, D.C„
20551, not later than July 22, 1985.
Board of Governors of
the Federal Reserve
System,
June 14, 1985.
William W. Wiles
Secretary of the Board
@FedFRASER