[Federal Register Volume 59, Number 9 (Thursday, January 13, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-844]


[[Page Unknown]]

[Federal Register: January 13, 1994]


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FEDERAL RESERVE SYSTEM
 

National City Corporation; Application to Engage De Novo in 
Underwriting and Dealing in Certain Bank-Ineligible Securities on a 
Limited Basis, and Other Securities-Related Activities

    National City Corporation, Cleveland, Ohio (Applicant), has applied 
pursuant to section 4(c)(8) of the Bank Holding Company Act (12 U.S.C. 
1843(c)(8)) (BHC Act) and Sec.  225.23(a)(3) of the Board's Regulation 
Y (12 CFR 225.23(a)(3)), to engage de novo through its subsidiary, 
National City Investments Corporation, Cleveland, Ohio (Company), in 
various securities and securities-related activities described below.
    Applicant proposes to engage de novo in the following activities 
previously authorized by the Board:
    (1) Making and servicing loans pursuant to Sec.  225.25(b)(1) of 
Regulation Y;
    (2) Engaging in investment advisory activities pursuant to Sec.  
225.25(b)(4) of Regulation Y;
    (3) Providing management consulting services to depository 
institutions pursuant to Sec.  225.25(b)(11) of Regulation Y;
    (4) Providing discount and full service brokerage services pursuant 
to Sec.  225.25(b)(15)(i) and (ii) of Regulation Y;
    (5) Underwriting U.S. Government, agency, state, and municipal 
securities pursuant to Sec.  225.25(b)(16) of Regulation Y;
    (6) Providing foreign exchange advisory and transactional services 
pursuant to Sec.  225.25(b)(17) of Regulation Y;
    (7) Engaging in futures commission merchant activities pursuant to 
Sec.  225.25(b)(18) of Regulation Y;
    (8) Providing investment advice on financial futures and options on 
futures pursuant to Sec.  225.25(b)(19) of Regulation Y.
    Applicant proposes to engage de novo in activities which previously 
have been determined by the Board by Order to be closely related to 
banking. Applicant proposes to buy and sell in secondary market trading 
all types of securities on the order of investors as a ``riskless 
principal.'' Applicant proposes to underwrite and deal in municipal 
revenue bonds, residential mortgage related securities, consumer 
receivable-related securities, and commercial paper. Applicant also 
proposes to engage in the private placement of all types of securities 
and to provide related advisory services. In addition, Applicant 
proposes to act as agent in the purchase and sale of gold and silver 
bullion, bars, rounds, and coins for the account of customers.
    Section 4(c)(8) of the BHC 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 proper incident thereto.'' This statutory 
test requires that two separate tests be met for an activity to be 
permissible for a bank holding company. First, the Board must determine 
that the activity is, as a general matter, ``closely related to 
banking.'' Second, the Board must find in a particular case that the 
performance of the activity by the applicant bank holding company may 
reasonably be expected to produce public benefits that outweigh 
possible adverse effects.
    Applicant believes that these proposed activities are ``so closely 
related to banking or managing or controlling banks as to be proper 
incident thereto.'' The Board has previously authorized riskless 
principal and private placement activities, subject to certain 
prudential limitations which address the potential for conflicts of 
interest, unsound banking practices, and other adverse effects. See, 
e.g., J.P. Morgan & Company Inc., 76 Federal Reserve Bulletin 26 
(1990); Bankers Trust New York Corporation, 75 Federal Reserve Bulletin 
829 (1989). The Board also has previously authorized bank holding 
companies to underwrite and deal in municipal revenue bonds, 
residential mortgage related securities, consumer receivable-related 
securities, and commercial paper provided that the underwriting 
subsidiary derives no more than 10 percent of its total gross revenue 
from underwriting and dealing in the approved securities over any two-
year period. See Citicorp, 73 Federal Reserve Bulletin 473 (1987) aff'd 
sub nom. Securities Industry Association v. Board of Governors of the 
Federal Reserve System, 839 F.2d 47 (2d Cir. 1988), cert. denied, 108 
S.Ct. 2830 (1988), modified by Order Approving Modifications to Section 
20 Orders, 75 Federal Reserve Bulletin 751 (1989). In addition, the 
Board has previously authorized bank holding companies to purchase and 
sell gold and silver bullion, rounds, and coins for the account of 
customers. See First Interstate Bancorp, 71 Federal Reserve Bulletin 
467 (1985); Midland Bank PLC, 76 Federal Reserve Bulletin 860 (1990).
    In order to satisfy the proper incident to banking test, section 
4(c)(8) of the BHC Act requires the Board to find that the performance 
of the activities by Company 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, conflicts of interest, or unsound banking practices. 
Applicants believe that the proposed activities will benefit the public 
by promoting competition. Applicants also believe that approval of this 
application will allow Company to provide a wider range of services and 
added convenience to its customers. Applicants believe that the 
proposed activities will not result in any unsound banking practices or 
other adverse effects.
    In conducting these activities, Applicant will comply with the 
commitments and prudential limitations established by the Board in 
previous Orders, except that Applicant proposes to have one officer 
interlock and less than a majority, but no more than two, director 
interlocks between Applicant's subsidiary banks and Company. Applicant 
states that the Board previously has allowed director interlocks 
between bank subsidiaries and a section 20 subsidiary of a bank holding 
company. See Synovus Financial Corporation, 77 Federal Reserve Bulletin 
954 (1991). Applicant also states that the Board has allowed officer 
interlocks between a U.S. branch of a foreign bank and a section 20 
subsidiary. See Barclays Bank PLC, 76 Federal Reserve Bulletin 158 
(1990). Applicant believes that the proposed interlocks are consistent 
with the prudential framework established by the Board in prior orders 
approving the proposed activities.
    In publishing the proposal for comment, the Board does not take a 
position on issues raised by the proposal. Notice of the proposal is 
published solely in order to seek the views of interested persons on 
the issues presented by the application and does not represent a 
determination by the Board that the proposal meets, or is likely to 
meet, the standards of the BHC Act.
    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, DC 20551, not later than February 
2, 1994. Any request for hearing on this application must, as required 
by Sec.  262.3(e) of the Board's Rules of Procedure (12 CFR 262.3(e)), 
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.
    This application may be inspected at the offices of the Board of 
Governors or the Federal Reserve Bank of Cleveland.

    Board of Governors of the Federal Reserve System, January 7, 
1994.
Jennifer J. Johnson,
Associate Secretary of the Board.
[FR Doc. 94-844 Filed 1-12-94; 8:45 am]
BILLING CODE 6210-01-F