[Federal Register Volume 59, Number 51 (Wednesday, March 16, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-6050]
[[Page Unknown]]
[Federal Register: March 16, 1994]
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FEDERAL RESERVE SYSTEM
12 CFR Part 225
[Regulation Y; Docket No. R-0832]
Revisions Regarding Tie-in Prohibitions
AGENCY: Board of Governors of the Federal Reserve System.
ACTION: Notice of proposed rulemaking.
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SUMMARY: The Board is seeking public comment on proposed amendments to
Regulation Y that would permit bank holding companies to offer
discounts on brokerage commissions if the customer obtains a
traditional bank product (a loan, discount, deposit, or trust service)
from any affiliate. The Board recently approved an exemption permitting
discounts on brokerage commissions for First Union Corporation,
Charlotte, North Carolina (First Union), and the proposed rule would
make it available to bank holding companies generally, thus avoiding
the need for action on individual requests.
The proposal also seeks comment on whether the Board should adopt
an exception to the antitying prohibitions to permit a bank to discount
a traditional bank product if the customer obtains another traditional
bank product from an affiliate of the bank. This exemption extends to
affiliates the statutory exemption that permits a bank to offer
discounts on packages of traditional bank products. The Board has
received several requests for exemptions involving individual
traditional bank products and believes that such an exemption is more
appropriately addressed in rulemaking.
DATES: Comments must be submitted on or before April 14, 1994.
ADDRESSES: Comments, which should refer to Docket No. R-0832, may be
mailed to the Board of Governors of the Federal Reserve System, 20th
and Constitution Avenue, NW., Washington, DC 20551, to the attention of
Mr. William W. Wiles, Secretary; or delivered to room B-2223, Eccles
Building, between 8:45 a.m. and 5:15 p.m. Comments may be inspected in
room MP-500 between 9:00 a.m. and 5:00 p.m., except as provided in
Sec. 261.8 of the Board's Rules Regarding Availability of Information,
12 CFR 261.8.
FOR FURTHER INFORMATION CONTACT: Robert deV. Frierson, Managing Senior
Counsel (202/452-3711); Laurie S. Schaffer, Senior Attorney (202/452-
2246), or David S. Simon, Attorney (202/452-3611), Legal Division; or
Anthony Cyrnak, Economist, (202/452-2917), Division of Research and
Statistics, Board of Governors. For the hearing impaired only,
Telecommunication Device for the Deaf (TDD), Dorothea Thompson (202/
452-3544), Board of Governors of the Federal Reserve System, 20th & C
Street, NW., Washington, DC 20551.
SUPPLEMENTARY INFORMATION:
Background
Section 106(b) of the Bank Holding Company Act Amendments of 1970
(12 U.S.C. 1971 et seq.) (Section 106) generally prohibits banks from
tying a product or service to another offered by the bank or any of its
affiliates. A prohibited tie-in occurs if a bank: (1) varies the
consideration for credit or other service on the condition that the
customer obtain some additional service from the bank or any of its
affiliates; or (2) actually requires the customer to purchase another
product or service from the bank or any of its affiliates as a
condition for providing the customer the first product or service. In
1971, the Board applied these antitying prohibitions to bank holding
companies and their nonbank subsidiaries as if they were banks.
The statute provides an exemption permitting a bank to tie a
product with a traditional bank product\1\ offered from that bank, but
not from any of its affiliates. Thus, Section 106 permits a bank to
discount the consideration paid for credit if a customer also obtains a
traditional banking product from that bank (but not an affiliate of
that bank).
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\1\ These products are defined for purposes of tie-in
prohibitions as ``a loan, discount, deposit, or trust service.'' 12
U.S.C. 1972(1)(A).
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Section 106 provides that the Board may, by regulation or order,
permit exceptions from the antitying prohibition where the Board
determines that an exception will not be contrary to the purposes of
the section.
Analysis of Proposed Amendments
Discounts on Brokerage Services. The Board recently approved an
exemption for a brokerage subsidiary of a First Union bank to offer
discounts on commissions for brokerage services to customers who
maintain a minimum balance in accounts at any First Union bank.\2\ The
Board found that the market for retail brokerage services is national
in scope and highly competitive therefore making it unlikely that First
Union--or any other provider of brokerage services--could exercise
sufficient market power to impair competition in the market for
traditional banking services. The Board also noted that, under
antitrust precedent, concerns over these types of arrangements were
substantially reduced where the buyer is free to take either product by
itself even though the seller also may offer the two items as a unit at
a single price.\3\ Under these circumstances, the Board concluded that
the requested exemption was consistent with the legislative purpose of
the statute (to prevent banks from using their economic power to lessen
competition or engage in anticompetitive practices) and the legislative
purpose of the Board's exemptive authority (to allow appropriate
traditional banking practices based on sound economic analysis).
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\2\ First Union Corporation, 80 Federal Reserve Bulletin 166
(1994) (``First Union Order'').
\3\ Northern Pacific R. Co. v. United States, 356 U.S. 1, 6, n.4
(1958).
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The Board believes that this exemption should be available to all
bank holding companies, and the proposed rule implements this exemption
by permitting a bank to offer a discount on brokerage services if the
customer obtains a traditional banking product from that bank or any
affiliate. The brokerage services and traditional banking products
offered in the arrangement, however, could be separately purchased by
the customer.
Traditional Bank Products. As noted, Section 106 contains an
exemption that permits a bank to tie a product to a traditional bank
product so long as both products are offered by the bank itself. The
statute does not permit a bank to tie its products to a traditional
bank product offered by an affiliate bank or nonbank, however. The
Board has received several requests for exemptions involving proposed
discounts on individual traditional bank products offered by a bank and
its affiliates.\4\ The proposal seeks comment on adopting an exception
to the antitying restrictions of Section 106 to permit a bank to offer
a discount on a traditional bank product it offers if the customer
obtains another traditional bank product from an affiliate of the bank,
provided that all the products are available for separate purchase by
the customer.
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\4\ A request by First Union, which would permit any First Union
bank to vary the consideration on traditional bank products to
customers who maintain a minimum balance in accounts at any bank
affiliate, was published and received 10 comments. All the
commenters favored the proposal, and several commenters requested
the Board to broaden the exemption to include all traditional bank
products through rulemaking.
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The Board believes that such an exemption is consistent with the
purposes of the statute, and the Congressional intent not to affect
traditional banking relationships. In this regard, the Senate Report
states that the traditional bank products exemption was intended to
preserve a customer's ability to negotiate the price of multiple
banking services with the bank on the basis of the customer's entire
relationship.\5\ The Senate Report also suggests that the Board could
use its exemptive authority to continue to allow appropriate
traditional banking practices.\6\
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\5\ S. Rep. No. 1084, 91st Cong., 2d Sess., 16-17 (1970)
(``Senate Report''). The Senate Report cites the following
application of the exemption: ``where the customer uses multiple
banking services such as deposit, loan, fiduciary, and commercial
accounts or facilities, the parties may be free to fix or vary the
consideration for any services upon the existence or extent of
utilization of such banking services.'' Senate Report at 17. Senator
Bennett noted when introducing the tie-in amendment that
``[c]learly, neither a bank nor its customer should be attacked
under [Section 106] for taking advantage of the economies and
efficiencies of full-service banking.'' 116 Cong. Rec. S15708
(1970).
\6\ Senate Report at 46.
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Banks organized in a bank holding company structure currently are
subject to regulatory burdens not imposed on single banks offering
discounts on traditional bank products. Moreover, it does not appear to
further the purpose of the statute to allow a bank to discount a
product it offers if the customer has purchased a traditional bank
product from the bank, but not to allow the discount when the customer
has purchased the very same traditional bank product from an affiliate
bank or nonbank. By removing this regulatory burden, the Board believes
that consumers would benefit from costs savings realized through more
efficient operations.
The same efficiencies and costs savings to consumers would be
realized by permitting discounts on traditional bank products offered
by nonbank affiliates in a package arrangement with an affiliate bank.
In this regard, the legislative history for provisions involving tying
prohibitions enacted after Section 106 support these types of package
arrangements for traditional bank products offered in combination with
nonbanking affiliates.\7\
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\7\ In the Competitive Equality Banking Act of 1987 (Pub. L.
100-86), which applied the tie-in restrictions to nonbank banks,
Congress indicated that ``the anti-tying restrictions [of Section
106] would not be violated by tying one of these traditional banking
services offered by a grandfathered nonbank bank to another
traditional banking service offered by an affiliate.'' H.R. Conf.
Rep. No. 261, 100th Cong., 1st Sess. 128-29 (1987). While this
excerpt does not accurately reflect the literal terms of Section
106, it lends support for the proposed extension of an exemption for
tie-in arrangements for traditional banking services offered by a
bank and its nonbanking affiliates or parent holding company.
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Paperwork Reduction Act
No collections of information pursuant to section 3504(h) of the
Paperwork Reduction Act (44 U.S.C. 3501 et seq.) are contained in the
proposed rule.
Regulatory Flexibility Act
It is hereby certified that this proposed rule, if adopted as a
final rule, will not have a significant economic impact on a
substantial number of small entities that would be subject to the
regulation.
List of Subjects in 12 CFR Part 225
Administrative practice and procedure, Banks, banking, Holding
companies, Reporting and recordkeeping requirements, Securities.
For the reasons set forth in the preamble, the Board proposes to
amend 12 CFR part 225 as set forth below:
PART 225--BANK HOLDING COMPANIES AND CHANGE IN BANK CONTROL
(REGULATION Y)
1. The authority citation for part 225 continues to read as
follows:
Authority: 12 U.S.C. 1817(j)(13), 1818, 1831i, 1831p-1,
1843(c)(8), 1844(b), 1972(1), 3106, 3108, 3907, 3909, 3310, and
3331-3351.
2. In Sec. 225.4, new paragraphs (d)(3) and (d)(4) are added to
read as follows:
Sec. 225.4 Corporate practices.
* * * * *
(d)(1)
* * * * *
(3) Exemption for brokerage services. A bank may vary the
consideration charged for brokerage services on the condition or
requirement that the customer also obtain a loan, discount, deposit, or
trust service (but no other products) from that bank or any affiliate,
if the brokerage services and the loan, discount, deposit, or trust
service offered in the arrangement also are separately available for
purchase by the customer. The exemption granted pursuant to this
paragraph shall terminate upon a finding by the Board that the
arrangement is resulting in anticompetitive practices.
(4) Exemption for traditional bank products. A bank may vary the
consideration charged for a loan, discount, deposit, or trust service
(but no other products) on the condition or requirement that the
customer also obtain a loan, discount, deposit, or trust service (but
no other products) from an affiliate of that bank, if all these
products are separately available for purchase by the customer. The
exemption granted pursuant to this paragraph shall terminate upon a
finding by the Board that the arrangement is resulting in
anticompetitive practices.
* * * * *
By order of the Board of Governors of the Federal Reserve
System, March 10, 1994.
Jennifer J. Johnson,
Associate Secretary of the Board.
[FR Doc. 94-6050 Filed 3-15-94; 8:45 am]
BILLING CODE 6210-01-F