[Federal Register Volume 59, Number 78 (Friday, April 22, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-9737]


[[Page Unknown]]

[Federal Register: April 22, 1994]


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FEDERAL RESERVE SYSTEM
 

Societe Generale, Paris, France; Application To Engage in 
Nonbanking Activities

    Societe Generale, Paris, France (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, FIMAT 
Futures USA, Inc., Chicago, Illinois (Company), in the following 
nonbanking activities: (1) acting as agent and providing investment 
advice in connection with the execution of spot, forward and over-the-
counter options transactions in the foreign exchange market; (2) acting 
as agent and providing investment advice in connection with interest 
rate swap and currency swap transactions and certain interest rate and 
currency risk-management products, such as caps, floors and collars; 
and (3) buying and selling, on the order of investors as riskless 
principal, foreign government securities issued by nations that are 
full members of the Organization of Economic Cooperation and 
Development.
    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 has previously approved acting as broker or agent with 
respect to interest rate and currency swaps, caps, floors, collars, and 
swap-related products, including providing advice to institutional 
customers regarding such financial instruments. See, e.g., The Sanwa 
Bank, Limited, 77 Federal Reserve Bulletin 64 (1991); The Fuji Bank, 
Limited, 76 Federal Reserve Bulletin 768 (1990); The Sumitomo Bank, 
Limited, 75 Federal Reserve Bulletin 582 (1989). Applicant proposes to 
engage in these swap activities subject to the provisions and 
conditions established by the Board in its previous orders.
    The Board also has previously approved the proposed buying and 
selling of securities on the order of investors as riskless principal. 
See, e.g., J.P. Morgan & Company Incorporated, 76 Federal Reserve 
Bulletin 26 (1990); Bankers Trust New York Corporation, 75 Federal 
Reserve Bulletin 829 (1989). Applicant commits that Company will 
conduct this proposed activity using substantially the same methods and 
procedures established by the Board in these orders.
    In providing the proposed foreign exchange advisory and 
transactional services, the Board's regulations set forth certain 
limitations on the conduct of such activities, including that the 
subsidiary conducting these activities not itself execute foreign 
exchange transactions. See 12 CFR 225.25(b)(17). The Board has, 
however, permitted bank holding company subsidiaries to deviate from 
the limitations imposed by this regulation in certain circumstances. In 
particular, in Banca Commerciale Italiana S.p.A., 76 Federal Reserve 
Bulletin 649 (1990) (Banca Commerciale), the Board permitted the Banca 
Commerciale to provide foreign exchange advisory and transactional 
services in a subsidiary that also executed foreign exchange 
transactions. The Board concluded in Banca Commerciale that the 
potential adverse effects related to permitting this combination of 
activities was limited because the subsidiary would be conducting 
foreign exchange activities as a relatively small part of its overall 
business. Specifically, Banca Commerciale proposed that this 
subsidiary: (1) would provide foreign exchange services on behalf of 
customers as necessary to facilitate securities brokerage transactions 
for international customers and to permit these customers to hedge 
foreign exchange risks related to positions in foreign securities; (2) 
would not hold itself out as a foreign exchange business, except in 
connection with its securities brokerage services; and (3) did not 
expect to execute foreign exchange transactions on behalf of its 
customers for investment or speculative purposes or to advise its 
customers with respect to foreign exchange transactions for such 
purposes. See id.
    In contrast, Applicant proposes that Company provide both foreign 
exchange advisory and transactional services, and execute foreign 
exchange transactions on behalf of customers for both hedging and 
investment purposes. Applicant states that these activities will be 
provided on behalf of institutional investors and sophisticated 
customers, and that Company will not engage in foreign exchange 
services or execute foreign exchange transactions for Applicant's own 
accounts. Applicant argues that performing these activities in this 
manner is a logical extension of what has previously been approved by 
the Board. In particular, Applicant asserts that the proposed 
activities are closely related to banking because (1) the Board has 
recognized that commercial banks do combine the functions of giving 
advice on foreign exchange transactions and executing foreign exchange 
transactions; (2) the Board's reasoning in Banca Commerciale would 
support the conducting of such activities in circumstances where 
customers might desire to enter into such transactions for hedging and 
investment purposes unrelated to foreign securities; and (3) the 
Board's finding that the execution of foreign currency activities is 
closely related to banking should serve as an adequate basis for 
approving such activity for any of the various hedging or investment 
needs of a customer.
    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, and thereby permit Company to serve 
the hedging and investment needs of its customers more completely and 
efficiently. 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 May 13, 
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. April 18, 
1994.
Jennifer J. Johnson,
Associate Secretary of the Board.
[FR Doc. 94-9737 Filed 4-21-94; 8:45 am]
BILLING CODE 6210-01-F