[Federal Register Volume 59, Number 172 (Wednesday, September 7, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-21971]


[[Page Unknown]]

[Federal Register: September 7, 1994]


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FEDERAL RESERVE SYSTEM

 

BankAmerica Corporation, San Francisco, California; Application 
to Engage in Nonbanking Activities

    BankAmerica Corporation, San Francisco, California (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, BA Securities, Inc., San Francisco, California 
(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 debt and equity securities, including without limitation, corporate 
debt securities, sovereign debt securities, and securities issued by a 
trust or other vehicle secured by or representing interests in debt 
obligations, and 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 also proposes to engage through Company in the following 
activities that it maintains are incidental to the proposed 
underwriting and dealing activities: (1) providing investment advice to 
issuers of securities regarding such matters as the timing and 
structure of particular issues; (2) risk management activities 
respecting its underwriting and dealing activities, including the 
purchase and sale of futures, options, and options on futures to the 
extent permitted under applicable Board interpretation, as well as the 
purchase and sale of foreign currencies in spot or forward markets as 
may be necessitated by Company's underwriting or dealing in foreign 
currency-denominated securities; and (3) underwriting debt and equity 
securities on a best efforts basis. 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 Federal Register 806 (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 also maintains that the Board has determined that the 
proposed investment advisory, risk management, and best efforts 
underwriting activities are incidental to the proposed underwriting and 
dealing activities. See First Chicago Corporation, 80 Federal Reserve 
Bulletin 449, 451 n.7 (1994); BankAmerica, 79 Federal Reserve Bulletin 
1163 (1993) (investment advisory activities); see, e.g., 12 CFR 
225.142; Deutsche Bank AG, 79 Federal Reserve Bulletin 133, 139 (1993) 
(risk management); see J.P. Morgan & Co. et al., 75 Federal Reserve 
Bulletin 192, 213 n.59 (1989) (best efforts underwriting).
    Applicant has submitted a request for a confirmation that foreign 
subsidiaries, including the foreign bank subsidiaries, of Company's 
bank affiliates (Foreign Affiliates) are not subject to the section 20 
firewalls relating to cross-marketing activities. See J.P. Morgan & Co. 
Incorporated, et al., 75 Federal Reserve Bulletin 192, 215 (1989). 
Applicant also proposes to permit the Foreign Affiliates to sell bank-
ineligible securities underwritten by, dealt in, or placed by Company 
to institutional customers as defined in Regulation Y and accredited 
investors as defined in Regulation D of the Securities and Exchange 
Commission. Applicant also proposes to permit the Foreign Affiliates to 
recommend bank-ineligible securities to institutional customers and 
accredited investors provided that disclosure of Company's role in 
underwriting, dealing in, or placing the securities is made to the 
customers. 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, including the 
foreign bank 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 also proposes to have Company enter into certain 
transactions with certain foreign affiliates and with Applicant subject 
to the limitations previously imposed by the Board in letters to J.P. 
Morgan Securities, Inc., dated June 19, 1989 (Morgan Letters), except 
for the parent company guarantee described in the Morgan Letters in 
connection with certain repurchase and reverse repurchase transactions 
involving U.S. Treasury securities. 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 
September 28, 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 San Francisco.

    Board of Governors of the Federal Reserve System, August 31, 
1994.
William W. Wiles,
Secretary of the Board.
[FR Doc. 94-21971 Filed 9-6-94; 8:45 am]
BILLING CODE 6210-01-F