[Federal Register Volume 59, Number 80 (Tuesday, April 26, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-10023]


[[Page Unknown]]

[Federal Register: April 26, 1994]


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FEDERAL RESERVE SYSTEM
 

Chase Manhattan Corporation, New York, New York; Application to 
Engage in Nonbanking Activities

    Chase Manhattan Corporation, New York, New York (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 wholly 
owned subsidiary, Chase Securities, Inc., New York, New York (Company), 
a broker-dealer registered with the Securities and Exchange Commission 
under the Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.), in 
underwriting and dealing, to a limited extent, in all types of equity 
securities, including without limitation, common stock, American 
Depositary Receipts, Global Depository Receipts, securities convertible 
into equity securities and options, and other direct and indirect 
equity ownership interests in domestic and foreign corporations and 
other entities, warrants and other rights issued in connection with the 
above securities, and securities issued by closed-end investment 
companies but not including ownership interests in open-end investment 
companies. Applicant proposes to conduct these 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 (January 5, 1984).
    The Board previously has approved, by order, underwriting and 
dealing in, to a limited extent, all types of debt and equity 
securities. J.P. Morgan & Co. Incorporated, et al., 75 Federal Reserve 
Bulletin 192 (1989) (1989 Section 20 Order), as modified by Order dated 
September 21, 1989, 75 Federal Reserve Bulletin 751 (1989) 
(Modification Order) and the Order dated January 4, 1990 (Foreign Bank 
Order). Applicant has stated that, except as described below, it will 
conduct the proposed underwriting and dealing activities using the same 
methods and procedures, and subject to the same prudential limitations 
established by the Board in the 1989 Section 20 Order, as modified by 
the Modification Order, including the Board's 10 percent revenue 
limitation on such activities. For this reason, Applicant contends that 
approval of the application would not be barred by section 20 of the 
Glass-Steagall Act (12 U.S.C. 377), which prohibits the affiliation of 
a state member bank with any company principally engaged in the 
underwriting, public sale, or distribution of securities.
    Applicant has submitted a request for a confirmation that foreign 
subsidiaries of Company's bank affiliates are not subject to the 
section 20 firewalls relating to personnel interlocks and cross-
marketing activities. See J.P. Morgan & Co. Incorporated, et al., 75 
Federal Reserve Bulletin 192, 215 (1989). Applicant argues that the 
scope of these firewalls should be limited to U.S. affiliates of 
section 20 companies and that the extension of these firewalls to the 
foreign subsidiaries of Company's bank affiliates is not warranted in 
light of the regulatory framework applicable to these foreign 
subsidiaries, and that to do so would impose serious competitive 
disadvantages on Applicant.
    Applicant proposes that its subsidiary banks and the direct and 
indirect broker-dealer subsidiaries of such banks (including overseas 
broker-dealer subsidiaries of Edge Act subsidiaries of those banks) act 
as riskless principal or broker for customers in buying and selling 
bank-eligible securities that Company underwrites or deals in and to 
market such securities on behalf of Company. Applicant maintains that 
these activities are consistent with the Board's determinations in 
BankAmerica Corporation, 79 Federal Reserve Bulletin 1163, 1165 (1993) 
and Chemical Banking Corporation, 80 Federal Reserve Bulletin 49, 50 
n.3 (1994). Applicant otherwise would continue to comply with the 
Section 20 Firewalls set forth in J.P. Morgan, supra, as modified 
subsequently by the Board.
    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, lower financing costs, and more innovative 
financing. 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 May 16, 
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,
Jennifer J. Johnson,
Associate Secretary of the Board.
[FR Doc. 94-10023 Filed 4-25-94; 8:45 am]
BILLING CODE 6210-01-F