[Federal Register Volume 66, Number 2 (Wednesday, January 3, 2001)]
[Rules and Regulations]
[Pages 257-261]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-42]


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FEDERAL RESERVE SYSTEM

12 CFR Part 225

[Regulation Y; Docket No. R-1094]

Bank Holding Companies and Change in Bank Control

DEPARTMENT OF THE TREASURY

Office of the Under Secretary for Domestic Finance

12 CFR Part 1501

RIN 1505-AA85


Financial Subsidiaries

AGENCY: Board of Governors of the Federal Reserve System and Department 
of the Treasury.

ACTION: Joint interim rule with request for public comments.

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SUMMARY: The Board of Governors of the Federal Reserve System and the 
Secretary of the Treasury (the Agencies) are soliciting comment on 
interim rules that would implement section 4(k)(5) of the Bank Holding 
Company Act and section 5136A(b)(3) of the Revised Statutes, as enacted 
by the Gramm-Leach-Bliley Act. The interim rules find three general 
types of activities to be financial in nature, and create a mechanism 
by which financial holding companies, financial subsidiaries of 
national banks, or others may request that the Board or the Secretary, 
respectively, define particular activities within one of the three 
categories.
    The Board and the Secretary solicit comments on all aspects of the 
interim rule and will modify the final rule as appropriate in response 
to the comments received.

DATES: The interim rule is effective on January 2, 2001. Comments must 
be received by February 2, 2001.

ADDRESSES: Comments should refer to Docket No. R-1094, and may be 
mailed to Ms. Jennifer J. Johnson, Secretary, Board of Governors of the 
Federal Reserve System, 20th Street and Constitution Avenue, NW., 
Washington, DC 20551 or mailed electronically to 
[email protected] and to Three Financial Activities 
Regulation, Office of Financial Institution Policy, U.S. Department of 
the Treasury, 1500 Pennsylvania Avenue, NW., Room SC 37, Washington, DC 
20220 (or mailed electronically to 
[email protected]). Comments addressed to Ms. Johnson 
also may be delivered to Room B-2222 of the Eccles Building between 
8:45 a.m. and 5:15 p.m. weekdays or delivered to the guard station in 
the Eccles Building Courtyard on 20th Street, NW. (between Constitution 
Avenue and C Street, NW.) at any time. All comments received at the 
above address will be available for inspection and copying by any 
member of the public in the Freedom of Information Office, Room MP-500 
of the Martin Building, between 9:00 a.m. and 5:00 p.m. weekdays, 
except as provided in Sec. 261.14 of the Board's Rules Regarding the 
Availability of Information (12 CFR 261.14). Comments addressed to the 
Treasury Department may also be delivered to the Treasury Department 
mail room between the hours of 8:45 a.m. and 5:15 p.m. at the 15th 
Street entrance to the Treasury Building.

FOR FURTHER INFORMATION CONTACT: Board: Scott G. Alvarez, Associate 
General Counsel (202/452-3583), or Andrew S. Baer, Senior Attorney 
(202/452-2246), Legal Division. Users of Telecommunication Device for 
Deaf (TTD) only, contact Janice Simms at (202) 872-4984.
    Department of the Treasury: Gerry Hughes, Senior Financial Analyst 
(202/622-2740); Roberta K. McInerney, Assistant General Counsel 
(Banking and Finance) (202/622-0480); or Gary W. Sutton, Senior Banking 
Counsel (202/622-0480).

SUPPLEMENTARY INFORMATION:

Background

    These interim rules implement section 4(k)(5) of the Bank Holding 
Company Act (``BHC Act'') (12 U.S.C. 1843(k)(5)), which was added to 
the BHC Act by section 103 of the Gramm-Leach-Bliley Act (Pub. L. 106-
102, 113 Stat. 1338 (1999)) (the ``GLB Act''), and section 5136A(b)(3) 
of the Revised Statutes (12 U.S.C. 24a(b)(3)) (``section 5136A''), as 
enacted by section 121(a) of the GLB Act. The GLB Act amended the BHC 
Act to allow bank holding companies and foreign banks that qualify as 
financial holding companies to engage in a broad range of activities 
that are defined by the GLB Act to be financial in nature or incidental 
to a financial activity, or that the Board, in consultation with the 
Secretary of the Treasury, determines to be financial in nature or 
incidental to a financial activity.\1\ Bank holding companies that do 
not qualify as financial holding companies are limited to engaging in

[[Page 258]]

those nonbanking activities that were permissible for bank holding 
companies prior to the enactment of the GLB Act. The GLB Act also 
allowed national banks to establish ``financial subsidiaries.'' A 
financial subsidiary may engage in most, but not all, activities that 
are financial in nature or incidental to a financial activity for a 
financial holding company under section 4(k)(4) of the BHC Act (12 
U.S.C. 1843(k)(4)), and may engage in additional activities that are 
determined by the Secretary in consultation with the Board to be 
financial in nature or incidental to a financial activity, as well as 
in activities that are permissible for national banks to engage in 
directly. 12 U.S.C. 24a.
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    \1\ The GLB Act also allows financial holding companies to seek 
Board approval to engage in any activity that the Board determines 
both to be complementary to a financial activity and not to pose a 
substantial risk to the safety and soundness of depository 
institutions or the financial system generally. 12 U.S.C. 
1843(k)(1)(B).
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    The activities that were defined by the GLB Act to be financial in 
nature or incidental to a financial activity are generally set forth in 
section 4(k)(4) of the BHC Act (12 U.S.C. 1843(k)(4)). In addition, 
sections 4(k)(5) of the BHC Act and 5136A(b)(3) require the Board and 
the Secretary, respectively, to define the extent to which three other 
generally described activities are financial in nature or incidental to 
a financial activity. The Board and the Secretary may act by regulation 
or order. The Board must define these activities in a manner consistent 
with the purposes of the BHC Act, and the Secretary must apply similar 
standards. The three activities are:
    (i) Lending, exchanging, transferring, investing for others, or 
safeguarding financial assets other than money or securities;
    (ii) Providing any device or other instrumentality for transferring 
money or other financial assets; and
    (iii) Arranging, effecting or facilitating financial transactions 
for the account of third parties.
    These three categories encompass a wide range of activities. 
Included in these categories are some activities in which financial 
holding companies and national banks and their financial subsidiaries 
are already permitted to engage. For example, these categories include 
providing safe deposit services, electronic funds transfer activities, 
credit and stored-value card activities, securities brokerage 
activities, as well as finder activities. The categories were intended, 
however, to allow financial holding companies and financial 
subsidiaries to engage in activities that were not otherwise permitted 
for these companies.
    The Board and the Secretary therefore solicit comment regarding 
what activities should be defined by rule to be financial in nature or 
incidental to a financial activity for purposes of sections 4(k)(5) and 
5136A(b)(3). In addition, the Board and the Secretary solicit comment 
on an interim rule that creates a mechanism, described below, that 
would permit agency action by order on proposals to engage in specific 
activities pursuant to section 4(k)(5).

Interim Rule

    The Board and the Secretary are promulgating, on an interim basis, 
rules that create a procedure by which a financial holding company or a 
financial subsidiary may obtain a determination from the Board or the 
Secretary, respectively, that a specific proposed activity does, in 
fact, fall within one of the three defined types of activities.
    The interim rules also provide that the Board and the Secretary 
will consult with each other with regard to any request for such a 
determination. This consultation is required by section 4(k)(2)(A) of 
the BHC Act (12 U.S.C. 1843(k)(2)(A)), which requires the Board to 
notify the Secretary of any request under section 4(k) for a 
determination of whether an activity is financial in nature or 
incidental to a financial activity, and by section 5136A(b)(1)(B) (12 
U.S.C. 24a(b)(1)(B)), which requires similar notification and 
consultation for proposals raised before the Secretary. Following this 
consultation, the agency to which the request was made will promptly 
issue a written determination regarding whether the specific proposed 
activity falls within one of the three categories of activities listed 
in sections 4(k)(5) and 5136A(b)(3). The Board and the Secretary 
believe that requiring financial holding companies and financial 
subsidiaries that seek to engage in particular activities pursuant to 
section 4(k)(5) or section 5136A(b)(3) to file requests with the 
appropriate agency for approval of those activities is necessary at 
this time because of the broad scope of the statutory language.
    Any request made under the interim rules for a determination that 
an activity falls within one of the three listed categories must be 
submitted in writing to the Board or the Secretary, as appropriate, and 
must identify and define the activity for which the determination is 
sought, including a precise description of what the activity would 
involve and how and by what entity it would be conducted. The request 
must also include information that supports the requested 
determination, and in particular information regarding how the proposed 
activity falls into one of the three categories and any other 
information required by the Board or the Secretary.
    In reviewing requests to find that a specific activity falls within 
one of the three categories, the Board and the Secretary will take into 
account the same factors each must consider when determining whether 
any activity is financial in nature or incidental to a financial 
activity. These factors include, among other things, changes in 
marketplaces in which financial holding companies and banks compete, 
changes in the technology for delivering financial services, and 
whether the activity is necessary or appropriate to allow financial 
holding companies and their affiliates, or banks and their 
subsidiaries, to compete effectively with any company seeking to 
provide financial services in the United States.\2\
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    \2\ 12 U.S.C. 24a(b)(2) and 1843(k)(3).
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    The mechanism for reviewing specific requests under sections 
4(k)(5) and 5136A(b)(3) is being adopted on an interim basis to allow 
interested financial holding companies and financial subsidiaries to 
take advantage of these authorities immediately. The agencies invite 
comment on this interim mechanism.
    The Board and the Secretary also invite comment generally on what, 
if any, activities should be defined by rule to be within the 
authorities granted by sections (4)(k)(5) and 5136A(b)(3). In this 
regard, the Board's Regulation Y currently employs the term ``financial 
asset'' primarily in connection with securities and precious metals.\3\ 
The Board and the Treasury solicit comment regarding what other types 
of assets should also be considered financial assets for purposes of 
section 4(k)(5) and section 5136A(b)(3). In this regard, the Board and 
the Secretary believe that it would be inconsistent with the purposes 
of the GLB Act and the BHC Act to treat as a financial asset any item 
that can be purchased or acquired in exchange for a financial 
instrument such as cash.
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    \3\ 12 C.F.R. 225.28(b)(8)(ii)(B).
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    Once the appropriate agency has determined that a particular 
activity is financial in nature or incidental to a financial activity 
under sections 4(k)(5) or 5136A(b)(3), either by rule or by order, 
other financial holding companies and financial subsidiaries would be 
eligible to engage in the activity if applicable requirements are met. 
A financial holding company must file a notice with the Board within 30 
days after commencement of the activity, in accordance with section 
4(k)(6) of the BHC Act (12 U.S.C. 1843(k)(6)) and section 225.87 of the 
Board's Regulation Y (12 CFR 225.87). A national bank seeking to engage 
in the

[[Page 259]]

activity through a financial subsidiary must file a notice with the OCC 
in accordance with section 5136A and section 5.39(i) of the regulations 
of the OCC (12 CFR 5.39(i)). In either case, the company must conduct 
the activity in accordance with the relevant order or rule.
    The Board and the Secretary invite comment on all aspects of the 
proposal and interim rules.

Plain Language

    Section 722 of the GLB Act requires the Board to use ``plain 
language'' in all proposed and final rules published after January 1, 
2000. In light of this requirement, the Board has sought to present its 
proposed rule in a simple and straightforward manner and has included 
in the rule examples of activities that would be permissible under the 
proposed rule. The Board invites comments on whether there are 
additional steps the Board could take to make the proposed rule easier 
to understand.

Regulatory Flexibility Act Analysis

    Pursuant to section 605(b) of the Regulatory Flexibility Act, the 
Agencies certify that the interim rules would not have a significant 
economic impact on a substantial number of small entities within the 
meaning of the Regulatory Flexibility Act (5 U.S.C. 601 et seq.). The 
interim rules would reduce the regulatory burden on financial holding 
companies and financial subsidiaries of national banks by permitting 
them to engage in an expanded range of activities, if they choose to do 
so. The interim rules would apply to all financial holding companies 
and national bank financial subsidiaries, regardless of their size. The 
interim rules should enhance the ability of financial holding companies 
and financial subsidiaries, including small financial holding companies 
and financial subsidiaries, to compete with other providers of 
financial services in the United States and to respond to technological 
and other changes in the marketplace in which they compete. 
Accordingly, a regulatory flexibility analysis is not required.

Administrative Procedure Act

    The provisions of the rule are effective on January 2, 2001 on an 
interim basis. Pursuant to 5 U.S.C. 553, the Board and the Secretary 
find that it is impracticable to review public comments prior to the 
effective date of the interim rule, and that there is good cause to 
make the interim rule effective on January 2, 2001, due to the fact 
that the rule sets forth procedures to implement statutory changes that 
became effective on March 11, 2000. Specifically, the rule sets forth a 
mechanism through which the Board and the Secretary may act on requests 
to find particular activities to be permissible for financial holding 
companies or financial subsidiaries of national banks pursuant to 
section 4(k)(5) or 5136A(b)(3). The Board and the Secretary are seeking 
public comment on all aspects of the interim rule and will amend the 
rule as appropriate after reviewing the comments.

Paperwork Reduction Act

    Board: In accordance with section 3506 of the Paperwork Reduction 
Act of 1995 (44 U.S.C. Ch. 35; 5 CFR 1320 Appendix A.1), the Board 
reviewed the interim rule under the authority delegated to the Board by 
the Office of Management and Budget.
    The collection of information requirements in this interim 
rulemaking are found in 12 CFR 225.86. This information is required to 
evidence compliance with the requirements of Title I of the GLB Act, 
which amends section 4 of the Bank Holding Company Act (12 U.S.C. 
1843). The respondents are current and future bank holding companies 
and foreign banking organizations.
    The specific written request cited in 12 CFR 225.86(d)(2) provides 
that a financial holding company that wishes to engage in a particular 
activity pursuant to section 4(k)(5) of the BHC Act and 12 CFR 
225.86(b)(1) must file a request with the Board that it find the 
proposed activity to fall under one of the three categories of 
activities listed in section 4(k)(5) and 12 CFR 225.86(b)(1). If the 
Board has previously determined that the proposed activity falls under 
one of those three categories, no such request need be made. The 
request must include information that specifically describes the 
proposed activity, and that articulates reasons why the activity should 
be considered to fall under one of the three listed activity 
categories. There will be no reporting form for this information 
collection. The agency form number for this written request is FR 4012. 
The Federal Reserve estimates that approximately 25 financial holding 
companies will file the requests for Board determination during the 
first year and that it will take approximately 1 hour to file such 
request. This would result in an estimated annual burden of 25 hours.
    The OMB control number for this interim rule is 7100-0292. The 
Federal Reserve may not conduct or sponsor, and an organization is not 
required to respond to this information collection unless the Board has 
displayed a valid OMB control number.
    A financial holding company may request confidentiality for the 
information contained in this information collection pursuant to 
sections (b)(4) and (b)(6) of the Freedom of Information Act (5 U.S.C. 
552(b)(4) and (b)(6)).
    Comments are invited on: (a) Whether the proposed collection of 
information is necessary for the proper performance of the Federal 
Reserve's functions, including whether the information has practical 
utility; (b) the accuracy of the Federal Reserve's estimate of the 
burden of the proposed information collection, including the cost of 
compliance; (c) ways to enhance the quality, utility, and clarity of 
the information to be collected; and (d) ways to minimize the burden of 
information collection on respondents, including through the use of 
automated collection techniques or other forms of information 
technology. Comments on the collection of information should be sent to 
the Office of Management and Budget, Paperwork Reduction Project, 
Washington, DC 20503, with copies of such comments to be sent to Mary 
M. West, Federal Reserve Board Clearance Officer, Division of Research 
and Statistics, Mail Stop 97, Board of Governors of the Federal Reserve 
System, Washington, DC 20551.
    Treasury: This regulation is being issued without prior notice and 
public procedure pursuant to the Administrative Procedure Act (5 U.S.C. 
553). For this reason, the collection of information contained in this 
regulation has been reviewed under the requirements of the Paperwork 
Reduction Act (44 U.S.C. 3507(j)) and, pending receipt and evaluation 
of public comments, approved by the Office of Management and Budget 
(OMB) under control number 1505-0179. An agency may not conduct or 
sponsor, and a person is not required to respond to, a collection of 
information unless it displays a valid control number assigned by OMB.
    Comments concerning the collection of information should be 
directed to OMB, Attention: Desk Officer for the Department of the 
Treasury, Office of Information and Regulatory Affairs, Washington, 
D.C., 20503, with copies to Gary Sutton, Senior Banking Counsel, Office 
of General Counsel, 1500 Pennsylvania Avenue NW., Room 2014, 
Washington, DC 20220. Any such comments should be submitted not later 
than February 2, 2001. Comments are specifically requested concerning:

[[Page 260]]

    Whether the proposed collection of information is necessary for the 
proper performance of the functions of the Secretary, including whether 
the information will have practical utility; the accuracy of the 
estimated burden associated with the proposed collection of information 
(see below); how to enhance the quality, utility, and clarity of the 
information to be collected; how to minimize the burden of complying 
with the proposed collection of information, including the application 
of automated collection techniques or other forms of information 
technology; and estimates of capital or start-up costs and costs of 
operation, maintenance, and purchase of services to provide 
information.
    The collection of information in this regulation is in 12 CFR 
section 1501.2. This information is required to request that the 
Secretary determine that a particular activity is included within three 
general categories of activities and therefore that it is financial in 
nature or incidental to a financial activity. This information will be 
used to enable the Secretary to evaluate a request for such a 
determination. The collection of information is required to obtain a 
benefit. The likely respondents are national banks.
    Estimated total annual reporting burden: 100 hours.
    Estimated average annual burden hours per respondent: 20 hours.
    Estimated number of respondents: 5.
    Estimated annual frequency of responses: once.

Executive Order 12866 Determination

    The Department of the Treasury has determined that this rule does 
not constitute a ``significant regulatory action'' for the purposes of 
Executive Order 12866.

List of Subjects

12 CFR Part 225

    Administrative practice and procedure, Banks, banking, Federal 
Reserve System, Holding companies, Reporting and record keeping 
requirements, Securities.

12 CFR Part 1501

    Administrative practice and procedure, National banks, Reporting 
and recordkeeping requirements.

Board of Governors of the Federal Reserve System

12 CFR Chapter II

Authority and Issuance

    For the reasons set out in the joint preamble, the Board amends 12 
CFR Part 225 as follows:

PART 225--BANK HOLDING COMPANY 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, 1828(o), 1831(i), 1831p-
1, 1843(c)(8), 1843(k), 1844(b), 1972(1), 3106, 3108, 3310, 3331-
3351, 3907, and 3909.

    2. In Sec. 225.86, a new paragraph (d) is added and reserved; and a 
new paragraph (e) is added to read as follows:


Sec. 225.86  What activities are permissible for financial holding 
companies?

* * * * *
    (e) Activities permitted under section 4(k)(5) of the Bank Holding 
Company Act (12 U.S.C. 1843(k)(5)).
    (1) The following types of activities are financial in nature or 
incidental to a financial activity when conducted pursuant to a 
determination by the Board under paragraph (e)(2) of this section:
    (i) Lending, exchanging, transferring, investing for others, or 
safeguarding financial assets other than money or securities;
    (ii) Providing any device or other instrumentality for transferring 
money or other financial assets; and
    (iii) Arranging, effecting, or facilitating financial transactions 
for the account of third parties.
    (2) Review of specific activities.
    (i) Is a specific request required? A financial holding company 
that wishes to engage on the basis of paragraph (e)(1) of this section 
in an activity that is not otherwise permissible for a financial 
holding company must obtain a determination from the Board that the 
activity is permitted under paragraph (e)(1).
    (ii) Consultation with the Secretary of the Treasury. After 
receiving a request under this section, the Board will provide the 
Secretary of the Treasury with a copy of the request and consult with 
the Secretary in accordance with section 4(k)(2)(A) of the Bank Holding 
Company Act (12 U.S.C. 1843(k)(2)(A)).
    (iii) Board action on requests. After consultation with the 
Secretary, the Board will promptly make a written determination 
regarding whether the specific activity described in the request is 
included in an activity category listed in paragraph (e)(1) of this 
section and is therefore either financial in nature or incidental to a 
financial activity.
    (3) What factors will the Board consider? In evaluating a request 
made under this section, the Board will take into account the factors 
listed in section 4(k)(3) of the BHC Act (12 U.S.C. 1843(k)(3)) that it 
must consider when determining whether an activity is financial in 
nature or incidental to a financial activity.
    (4) What information must the request contain? Any request by a 
financial holding company under this section must be in writing and 
must:
    (i) Identify and define the activity for which the determination is 
sought, specifically describing what the activity would involve and how 
the activity would be conducted; and
    (ii) Provide information supporting the requested determination, 
including information regarding how the proposed activity falls into 
one of the categories listed in paragraph (e)(1) of this section, and 
any other information required by the Board concerning the proposed 
activity.

By order of the Board of Governors of the Federal Reserve System.
    Dated: December 27, 2000.
Jennifer J. Johnson,
Secretary of the Board.

Department of the Treasury

12 CFR Chapter XV

Authority and Issuance

    For the reasons set forth in the preamble, the Department of the 
Treasury amends Part 1501 to Chapter XV of Title 12, to read as 
follows:

PART 1501--FINANCIAL SUBSIDIARIES

    1. The authority citation for part 1501 continues to read as 
follows:

    Authority: Section 5136A of the Revised Statutes (12 U.S.C. 
24a).

    2. Section 1501.2 is redesignated as Sec. 1501.3.
    3. A new Sec. 1501.2 is added to read as follows:


Sec. 1501.2  What activities has the Secretary determined to be 
financial in nature or incidental to a financial activity?

    (a) Activities permitted under section 5136A(b)(3) of the Revised 
Statutes (12 U.S.C. 24a(b)(3)).
    (1) The following types of activities are financial in nature or 
incidental to a financial activity when conducted pursuant to a 
determination by the Secretary under paragraph (a)(2) of this section:
    (i) Lending, exchanging, transferring, investing for others, or 
safeguarding financial assets other than money or securities;
    (ii) Providing any device or other instrumentality for transferring 
money or other financial assets; and
    (iii) Arranging, effecting, or facilitating financial transactions 
for the account of third parties.

[[Page 261]]

    (2) Review of specific activities.
    (i) Is a specific request required? A financial subsidiary that 
wishes to engage on the basis of paragraph (a)(1) of this section in an 
activity that is not otherwise permissible for a financial subsidiary 
must obtain a determination from the Secretary that the activity is 
permitted under paragraph (a)(1).
    (ii) Consultation with the Board of Governors of the Federal 
Reserve System. After receiving a request under this section, the 
Secretary will provide the Board of Governors of the Federal Reserve 
System (Board) with a copy of the request and consult with the Board in 
accordance with section 5136A(b)(1)(B)(i) of the Revised Statutes (12 
U.S.C. 24a(b)(1)(B)(i)).
    (iii) Secretary action on requests. After consultation with the 
Board, the Secretary will promptly make a written determination 
regarding whether the specific activity described in the request is 
included in an activity category listed in paragraph (a)(1) of this 
section and is therefore either financial in nature or incidental to a 
financial activity.
    (3) What factors will the Secretary consider? In evaluating a 
request made under this section, the Secretary will take into account 
the factors listed in section 5136A(b)(2) of the Revised Statutes (12 
U.S.C. 24a(b)(2)) that the Secretary must consider when determining 
whether an activity is financial in nature or incidental to a financial 
activity.
    (4) What information must the request contain? Any request by 
financial subsidiary under this section must be in writing and must:
    (i) Identify and define the activity for which the determination is 
sought, specifically describing what the activity would involve and how 
the activity would be conducted; and
    (ii) Provide information supporting the requested determination, 
including information regarding how the proposed activity falls into 
one of the categories listed in paragraph (a)(1) of this section, and 
any other information required by the Secretary concerning the proposed 
activity.
    (b) [Reserved]

    Dated: December 27, 2000.
Gregory A. Baer,
Assistant Secretary for Financial Institutions, Department of the 
Treasury.
[FR Doc. 01-42 Filed 1-2-01; 8:45 am]
BILLING CODE 6210-10-P