[Federal Register Volume 59, Number 64 (Monday, April 4, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-7944]


[[Page Unknown]]

[Federal Register: April 4, 1994]


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FEDERAL RESERVE SYSTEM
 

The Daiwa Bank, Limited; Application To Engage in Certain 
Nonbanking Activities

    The Daiwa Bank, Limited, Osaka, Japan (Applicant), has applied 
pursuant to Sec.  4(c)(8) of the Bank Holding Company Act (12 U.S.C. 
1843(c)(8)) (BHC Act) and Sec.  225.23 of the Board's Regulation Y (12 
CFR 225.23), to engage de novo through Cosmo Securities (America) Inc., 
New York, New York (Company), in the following nonbanking activities:
    1. Providing discount and full service securities brokerage 
services pursuant to Secs.  225.25(b)(15)(i) and (ii) of Regulation Y; 
and
    2. Purchasing and selling all types of securities as a riskless 
principal on the order of customers where Company may retain a position 
in the securities for up to seven days.
    Applicant seeks approval to conduct the proposed activities 
throughout the United States and the world.
    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 a 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.
    A particular activity may be found to meet the closely related to 
banking test if it is demonstrated that banks have generally provided 
the proposed activity; that banks generally provide services that are 
operationally or functionally similar to the proposed activity so as to 
equip them particularly well to provide the proposed activity; or that 
banks generally provide services that are so integrally related to the 
proposed activity as to require their provision in a specialized form. 
National Courier Ass'n v. Board of Governors, 516 F.2d 1229, 1237 (D.C. 
Cir. 1975). In addition, the Board may consider any other basis that 
may demonstrate that the activity has a reasonable or close 
relationship to banking or managing or controlling banks. Board 
Statement Regarding Regulation Y, 49 FR 806 (1984).
    The Board previously has determined by regulation that full service 
brokerage activities, when conducted within the limitations established 
by the Board in its regulations and in related interpretations and 
orders, are closely related to banking for purposes of section 4(c)(8) 
of the BHC Act. See 12 CFR 225.25(b)(15). In addition, the Board 
previously has determined by order that riskless principal activities, 
when conducted within the limitations established by the Board in its 
previous orders, are closely related to banking. 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). In 
addition, the Board has modified certain conditions contained in these 
orders for foreign banking organizations to address certain issues 
raised by an organization's foreign status and to avoid extending U.S. 
bank supervisory standards to foreign banks. See, e.g., The Royal Bank 
of Canada, 77 Federal Reserve Bulletin 272 (1991); Canadian Imperial 
Bank of Commerce, et al., 76 Federal Reserve Bulletin 158 (1990).
    Applicant maintains that Company will conduct the proposed 
activities in conformity with the conditions and limitations 
established by the Board by regulation or in prior cases, except that 
Company, in conducting its riskless principal activities, proposes to 
retain a position in securities for a period of up to seven days in the 
event that Company is unable to execute a customer's order in full in a 
single transaction. Riskless principal refers to a transaction in which 
a broker-dealer, after receiving an order to buy (or sell) a security 
from a customer, purchases (or sells) the security for its own account 
to offset a contemporaneous sale to (or purchase from) the customer. 
See 75 Federal Reserve Bulletin at 831. Applicant does not believe that 
the offsetting transactions need to occur on the same day in order to 
be contemporaneous. Rather, Applicant believes that a purchase or sale 
should be regarded as contemporaneous if it occurs promptly following 
the time it reasonably takes to complete the offsetting transaction. 
Furthermore, Applicant believes that the absence of market risk (as 
opposed to customer credit risk) is the key element in riskless 
principal transactions. Applicant states that Company will have a 
binding contractual commitment by its customer to buy or sell a given 
security before Company effects the offsetting transaction as a 
principal. Applicant does not believe that a time lapse between the two 
sides of the transaction creates a market risk for Company.
    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. 
Applicant believes that the proposed activities will benefit the public 
by promoting competition. Applicant also believes that approval of this 
application will allow Company to provide a wider range of services and 
added convenience to its customers. Applicant believes that the 
proposed activities will not result in any unsound banking practices or 
other adverse effects.
    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 comments 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 April 
29, 1994. Any request for a 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 New York.

    Board of Governors of the Federal Reserve System, March 29, 
1994.
William W. Wiles,
Secretary of the Board.
[FR Doc. 94-7944 Filed 4-1-94; 8:45 am]
BILLING CODE 6210-01-F