Full text of Federal Reserve Bank of New York Circulars : Securities Underwriting Activities of Bank Holding Company Subsidiaries

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AT CIRCULAR NO. ) D U 7 J ? c l

FEDERAL RESERVE BANK
OF NEW YORK

M arch 9, 1993

SECURITIES UNDERW RITING ACTIVITIES OF BANK
HOLDING COMPANY SUBSIDIARIES
M odification o f Board Order

To All Bank Holding Companies, and Others Concerned,
in the Second Federal Reserve District:
T he B oard of G overnors of the F e d eral R eserve System issued a supplem ent
to its previous O rd e r approving m odifications to section 20 O rd ers to allow the use
o f an alternative indexed revenue test to m easure com pliance w ith the 10 percen t
lim it on bank-ineligible securities activities. T he earlier O rd e r was sent to you with
our C ircular No. 10623, dated F ebruary 10, 1993.
P rin ted on th e reverse side is th e text of the supplem ent; questions th ereo n
m ay be directed to our Banking A pplications D e p a rtm en t (T el. No. 2 1 2 -7 2 0 -1 4 6 5 ).




E . G e r a l d C o r r ig a n ,

President.

(O v e r)

o n s w j u j Tt.:* t a
Supplement to Order Approving Modifications
to Section 20 Orders to Allow Use of Alternative Indexed
Revenue Test to Measure Compliance with the 10 Percent
Limit on Bank-Ineligible Securities Activities

O n January 26, 1993, the Board adopted an alternative indexed revenue test pursuant to
which a section 20 subsidiary could choose to adjust its revenue by a series of factors supplied by
the B oard that vary according to the average duration of the securities portfolio of the section 20
subsidiary. T he B oard has received a request for an in terp retatio n of th at p a rt of the January 26
O rder regarding the operation of the indexed revenue test. T he request asks w hether a section 20
subsidiary may, consistent with the January 26 O rder, im m ediately begin m easuring com pliance with
the indexed test on an eight-quarter rolling average basis using revenue figures from the seven
quarters prior to 1993 adjusted according to the average duration of its securities portfolio during
these quarters.
T he Board im plem ented the indexed revenue test on a prospective basis to allow a section
20 subsidiary that may not have data regarding the average duration of its securities portfolio prior
to 1993 to adopt the indexed m ethod nevertheless. If a section 20 subsidiary has the duration data
available to begin m easuring com pliance with the test on an eight-quarter rolling average basis
imm ediately, it may do so after notifying the relevant F ederal R eserve B ank.1
By o rder of the Board of G overnors,2 effective February 23, 1993.

Jennifer J. Johnson
A ssociate Secretary of the B oard

1 Tables of adjustment factors for each of the seven quarters prior to the first quarter of 1993 will be
published in the near future.

2 Voting for this action: Chairman Greenspan and Governors Mullins, Angell, LaWare, Lindsey, and
Phillips. Absent and not voting: Governor Kelley.