[Federal Register Volume 68, Number 168 (Friday, August 29, 2003)]
[Proposed Rules]
[Pages 51938-51939]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-22090]


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FEDERAL RESERVE SYSTEM

12 CFR Part 225

[Regulation Y; Docket No. R-1159]


Bank Holding Companies and Change in Bank Control: Exception to 
Anti-Tying Restrictions

AGENCY: Board of Governors of the Federal Reserve System.

ACTION: Proposed rule with request for public comment.

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SUMMARY: The Board proposes to adopt an exception to the anti-tying 
restrictions of section 106 of the Bank Holding Company Act Amendments 
of 1970 in order to equalize the treatment of financial subsidiaries of 
banks under section 106. The proposed exception provides that a 
financial subsidiary of a state nonmember bank shall be treated as an 
affiliate of the bank, and not as a subsidiary of the bank, for 
purposes of section 106. The anti-tying restrictions of section 106 
generally apply to subsidiaries, but not affiliates, of banks. 
Financial subsidiaries of national and state member banks already are 
treated as affiliates (and not subsidiaries) of the parent bank for 
purposes of section 106.

DATES: Comments must be received on or before September 30, 2003.

ADDRESSES: Comments should refer to Docket No. R-1159 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. However, because paper mail in the Washington 
area and at the Board of Governors is subject to delay, please consider 
submitting your comments by e-mail to [email protected] 
or faxing them to the Office of the Secretary at 202-452-3819 or 202-
452-3102. Members of the public may inspect comments in Room MP-500 of 
the Martin Building between 9 a.m. and 5 p.m. on weekdays pursuant to 
Sec.  261.12, except as provided in Sec.  261.14, of the Board's Rules 
Regarding Availability of Information (12 CFR 261.12 and 261.14).

FOR FURTHER INFORMATION CONTACT: Kieran J. Fallon, Senior Counsel (202-
452-5270), Mark E. Van Der Weide, Counsel (202-452-2263), or Andrew S. 
Baer, Counsel (202-452-2246), Legal Division, Board of Governors of the 
Federal Reserve System, 20th Street and Constitution Avenue, NW, 
Washington, DC 20551. For users of Telecommunications Device for the 
Deaf (TDD) only, contact 202-263-4869.

SUPPLEMENTARY INFORMATION:

Background

    Section 106 of the Bank Holding Company Act Amendments of 1970 
(section 106) generally prohibits a bank from conditioning the 
availability or price of one product or service (the ``desired 
product'') on a requirement that the customer obtain another product or 
service (the ``tied product'') from the bank or an affiliate of the 
bank.\1\ For example, the statute prohibits a bank from requiring that 
a prospective borrower purchase homeowners insurance from the bank or 
an affiliate of the bank in order to obtain a mortgage loan from the 
bank. Section 106 also contains several exceptions to its general 
prohibitions and authorizes the Board to grant any additional exception 
from the statute's prohibitions, by regulation or order, that the Board 
determines ``will not be contrary to the purposes'' of the statute.\2\
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    \1\ 12 U.S.C. 1972(1)(A) and (B). Section 106 also prohibits a 
bank from conditioning the availability or price of one product on a 
requirement that the customer (i) provide another product to the 
bank or an affiliate of the bank; or (ii) not obtain another product 
from a competitor of the bank or from a competitor of an affiliate 
of the bank. 12 U.S.C. 1972(1)(C), (D), and (E).
    \2\ 12 U.S.C. 1972(1).
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    Section 106 applies only to tying arrangements imposed by a bank, 
and generally does not apply to tying arrangements imposed by a nonbank 
affiliate of a bank. Because a subsidiary of a bank is considered to be 
part of the bank for most supervisory and regulatory purposes under the 
Federal banking laws, the restrictions in section 106 generally apply 
to tying arrangements imposed by a subsidiary of a bank in the same 
manner that the statute applies to the parent bank itself. Thus, a 
subsidiary of a bank generally is prohibited from conditioning the 
availability or price of a product on the customer's purchase of 
another product from the subsidiary, its parent bank, or any affiliate 
of its parent bank.
    The Board is publishing elsewhere in today's Federal Register a 
proposed interpretation of section 106 and related supervisory guidance 
with a request for public comment. The interpretation includes an 
extensive discussion of the scope and restrictions of section 106, as 
well as the statutory and regulatory exceptions to the statute's 
prohibitions.

Proposed Rule

    Federal law authorizes national and state member banks that meet 
certain conditions to own or control a financial subsidiary.\3\ A 
financial subsidiary of a national or state member bank may engage in 
certain activities--such as underwriting and dealing in corporate debt 
and equity securities--that the parent bank is not permitted to conduct 
directly. Unlike other subsidiaries, a financial subsidiary of a 
national or state member bank is treated as an

[[Page 51939]]

affiliate of the bank, and not as a subsidiary of the bank, for 
purposes of section 106.\4\ Accordingly, a financial subsidiary of a 
national or state member bank is not subject to the anti-tying 
restrictions of section 106. However, tying arrangements imposed by a 
financial subsidiary of a national or state member bank, like tying 
arrangements imposed by any other affiliate of a bank, remain subject 
to the tying restrictions contained in the Federal antitrust laws.\5\
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    \3\ See 12 U.S.C. 24a, 335. In order to be eligible to own or 
control a financial subsidiary, the national or state member bank 
and its depository institution affiliates must satisfy certain 
capital, managerial, Community Reinvestment Act (12 U.S.C. 2901 et 
seq.), and other requirements.
    \4\ See 12 U.S.C. 1971; 12 CFR 208.73(e).
    \5\ 15 U.S.C. 1 et seq. (Sherman Act); 15 U.S.C. 12 et seq. 
(Clayton Act).
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    Federal law also authorizes state nonmember banks that meet certain 
eligibility requirements to own or control a financial subsidiary.\6\ 
The Board proposes to adopt an exception under section 106 that would 
allow a financial subsidiary of a state nonmember bank to be treated as 
an affiliate of the parent bank, and not as a subsidiary of the bank, 
for purposes of section 106. The Board believes that providing equal 
treatment of all financial subsidiaries of banks under section 106 is 
appropriate to ensure competitive equality and would not be contrary to 
the purposes of section 106.\7\ The Board invites comment on all 
aspects of the proposed exception.
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    \6\ See 12 U.S.C. 1831w.
    \7\ As noted above, section 208.73(e) of the Board's Regulation 
H currently provides that a financial subsidiary of a state member 
bank is treated as an affiliate (and not a subsidiary) of the bank 
for purposes of section 106. 12 CFR 208.73(e). In order to 
consolidate the regulatory provisions relating to the treatment of 
financial subsidiaries of state banks under section 106, the Board 
also is proposing to include in section 225.7 of Regulation Y the 
provision that states that a financial subsidiary of a state member 
bank is treated as an affiliate of the bank for purposes of section 
106.
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Plain Language

    Section 722 of the Gramm-Leach-Bliley Act requires the Board to use 
``plain language'' in all proposed and final rules published after 
January 1, 2000.\8\ In light of this requirement, the Board has sought 
to present the proposed rule in a simple and straightforward manner. 
The Board invites comment on whether the Board could take additional 
steps to make the proposed rule easier to understand.
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    \8\ Pub. L. 106-102, 113 Stat. 1338 (1999), codified at 12 
U.S.C. 4809.
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Regulatory Flexibility Act

    In accordance with section 3(a) of the Regulatory Flexibility Act 
(5 U.S.C. 603(a)), the Board must publish an initial regulatory 
flexibility analysis with this proposed rule. The proposed rule, if 
adopted, would exempt financial subsidiaries of state nonmember banks 
from the anti-tying restrictions in section 106 of the Bank Holding 
Company Act Amendments of 1970 (12 U.S.C. 1972). A description of the 
reasons for the Board's decision to issue the proposed rule and a 
statement of the objectives of, and legal basis for, the proposed rule 
are contained in the supplementary information provided above.
    The proposed rule would apply to all state nonmember banks 
regardless of their size. The proposed rule would exempt any financial 
subsidiary of a state nonmember bank (including a small state nonmember 
bank) from the restrictions of section 106 and, thus, should reduce the 
regulatory burden imposed on state nonmember banks with financial 
subsidiaries. The proposed rule also would equalize the treatment of 
financial subsidiaries of national and state banks under section 106 
and, thus, promotes competitive equality. The Board specifically seeks 
comment on the likely burden the proposed rule would have on banks, 
especially small banks.

Paperwork Reduction Act

    In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 
3506; 5 CFR 1320 Appendix A.1), the Board has reviewed the proposed 
rule under authority delegated to the Board by the Office of Management 
and Budget. The proposed rule contains no collections of information 
pursuant to the Paperwork Reduction Act.

List of Subjects in 12 CFR Part 225

    Administrative practice and procedures, Banks, Banking, Federal 
Reserve System, Holding companies, Reporting and recordkeeping 
requirements, Securities.

Authority and Issuance

    For the reasons set forth in the preamble, the Board proposes to 
amend 12 CFR part 225 as follows:

PART 225--BANK HOLDING COMPANIES 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), 1831i, 1831p-1, 
1843(c)(8), 1843(k), 1844(b), 1972(1), 3106, 3108, 3310, 3331-3351, 
3907, and 3909; and 15 U.S.C. 6801 and 6805.

    2. Section 225.7 is amended as follows:
    a. By revising the introductory sentence of paragraph (b);
    b. By redesignating paragraphs (c) through (e) as paragraphs (d) 
through (f), respectively; and
    c. By adding a new paragraph (c).


Sec.  225.7  Exceptions to tying restrictions.

* * * * *
    (b) Exceptions to statute. Subject to the limitations of paragraph 
(d) of this section, a bank may--
* * * * *
    (c) Financial subsidiaries of state banks. A financial subsidiary 
of a state member bank held in accordance with section 9 of the Federal 
Reserve Act (12 U.S.C. 335) and a financial subsidiary of a state 
nonmember bank held in accordance with section 46 of the Federal 
Deposit Insurance Act (12 U.S.C. 1831w) shall be deemed to be a 
subsidiary of a bank holding company of the bank and an affiliate of 
the bank, and not a subsidiary of the bank, for purposes of section 106 
and this section.
* * * * *

    By order of the Board of Governors of the Federal Reserve 
System, August 25, 2003.
Jennifer J. Johnson,
Secretary of the Board.
[FR Doc. 03-22090 Filed 8-28-03; 8:45 am]
BILLING CODE 6210-02-P