[Federal Register Volume 68, Number 168 (Friday, August 29, 2003)]
[Notices]
[Pages 52024-52035]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-22091]



[[Page 52024]]

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FEDERAL RESERVE SYSTEM

[Docket No. OP-1158]


Anti-Tying Restrictions of Section 106 of the Bank Holding 
Company Act Amendments of 1970

AGENCY: Board of Governors of the Federal Reserve System.

ACTION: Proposed interpretation and supervisory guidance with request 
for public comment.

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SUMMARY: The Board proposes to adopt an interpretation of the anti-
tying restrictions of section 106 of the Bank Holding Company Act 
Amendments of 1970 and related supervisory guidance. The interpretation 
describes the scope and purposes of section 106, the elements of a 
tying arrangement prohibited by section 106, and the statutory and 
regulatory exceptions to the prohibitions of section 106. The 
interpretation also includes examples of the types of conduct, actions 
and arrangements by banks that are prohibited and permissible under 
section 106. The Board believes that adoption of the interpretation 
will assist banks and their customers in understanding the scope of the 
anti-tying restrictions of the statute. The related supervisory 
guidance discusses the types of internal controls that should help 
banks comply with section 106. The proposed interpretation and guidance 
reflect the principles that the Board will apply in enforcing section 
106 and conducting anti-tying reviews at banking organizations.

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

ADDRESSES: Comments should refer to Docket No. OP-1158 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 
section 261.12, except as provided in section 261.14, of the Board's 
Rules Regarding Availability of Information (12 CFR 261.12 and 261.14).

FOR FURTHER INFORMATION CONTACT: Scott G. Alvarez, Associate General 
Counsel (202-452-3583), 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; or Michael G. Martinson, 
Associate Director (202-452-3640), or Michael J. Schoenfeld, Senior 
Supervisory Financial Analyst (202-452-2836), Division of Banking 
Supervision and Regulation; 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 on a requirement that the customer 
also obtain another product from the bank or an affiliate of the 
bank.\1\ Thus, for example, the statute prohibits a bank from 
conditioning the availability of a loan from the bank (or a discount on 
the loan) on the requirement that the customer also purchase an 
insurance product from the bank or an affiliate.\2\
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    \1\ 12 U.S.C. 1972. Although part of the Bank Holding Company 
Act Amendments of 1970, section 106 applies to a bank whether or not 
the bank is owned or controlled by a bank holding company.
    \2\ Section 106 also generally 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 a competitor of an affiliate of the 
bank. 12 U.S.C. 1972(1)(C), (D) and (E). The arrangements prohibited 
by section 106 are collectively referred to as ``tying 
arrangements.''
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    Congress adopted section 106 in 1970 at the same time that it 
expanded the ability of bank holding companies to engage in nonbanking 
activities under section 4(c)(8) of the Bank Holding Company Act (BHC 
Act).\3\ Congress expressed concern that banks might use their ability 
to offer bank products--credit in particular--in a coercive manner to 
gain a competitive advantage in markets for nonbanking products and 
services (such as insurance sales).\4\ Congress therefore decided to 
impose the special anti-tying restrictions in section 106 on banks.
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    \3\ 12 U.S.C. 1843(c)(8).
    \4\ See S. Rep. No. 1084, 91st Cong., 2d Sess. (1970).
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    Section 106 does not apply to the nonbank affiliates of a bank or 
other nonbank entities.\5\ The nonbank affiliates of banks, as well as 
banks themselves, however, are subject to the anti-tying restrictions 
contained in the Federal antitrust laws (the Sherman and Clayton 
Acts).\6\
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    \5\ In 1971, the Board by regulation extended the anti-tying 
restrictions of section 106 to bank holding companies and their 
nonbank subsidiaries. In 1997, however, the Board rescinded this 
regulatory extension of the statute. See 62 FR 9290, Feb. 28, 1997.
    \6\ 15 U.S.C. 1 et seq.; 15 U.S.C. 12 et seq.
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    Although section 106 prohibits banks from imposing certain types of 
tying arrangements on their customers, the statute also expressly 
permits banks to engage in other forms of tying and authorizes the 
Board to grant additional exceptions to the statute's restrictions by 
regulation or order. For example, section 106 and the Board's 
regulations expressly permit a bank to condition the availability or 
price of a product or service on a requirement that the customer also 
obtain a ``loan, discount, deposit, or trust service'' (a ``traditional 
bank product'') from the bank or an affiliate of the bank.\7\
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    \7\ See 12 U.S.C. 1972(1)(A); 12 CFR 225.7(b)(1).
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    Although the general prohibitions of section 106 can be stated 
fairly simply, determining whether a violation of the statute has 
occurred often requires a careful analysis of the facts and 
circumstances associated with the particular transaction (or proposed 
transaction) at issue. For example, as noted above, several important 
exceptions exist to the statute's prohibitions. Moreover, the actions, 
statements and policies of the bank involved in the particular 
transaction often play an important role in determining whether the 
bank has violated section 106.
    The Federal banking agencies have long required that banking 
organizations establish and maintain appropriate policies and 
procedures to ensure compliance with the anti-tying restrictions of 
section 106,\8\ and the agencies monitor these policies and procedures 
through the supervisory process. For example, the anti-tying policies 
and procedures of bank holding companies and state member banks are 
reviewed and evaluated by Federal Reserve examiners as part of the 
compliance examinations of these organizations. In addition, examiners 
may conduct more targeted examinations of the marketing programs, anti-
tying training materials, internal reports and internal tying 
investigations of a banking organization.
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    \8\ See, e.g., Federal Reserve Board Bank Holding Company 
Supervision Manual 3500.0; Office of the Comptroller of the Currency 
Insurance Activities Handbook, Federal Prohibitions on Tying (June 
2002); Office of the Comptroller of the Currency Bulletin 95-20 
(April 14, 1995).
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    Over the past several months, Board staff also has met with 
customers of

[[Page 52025]]

banks, professional associations representing customers of banks, 
competitors of banks, and banking organizations and their trade 
associations concerning the scope, effectiveness and impact of the 
anti-tying restrictions of section 106 and related issues. In addition, 
the Board has received inquiries from banks, competitors of banks, 
customers of banks and a member of Congress regarding section 106 and 
its application to specific situations.
    In light of these events, the complexities associated with section 
106, and the increasing importance of section 106 in the wake of the 
Gramm-Leach-Bliley Act,\9\ the Board believes it would be useful and 
appropriate at this time to publish, and seek public comment on, an 
official interpretation of section 106 and supervisory guidance for 
banks concerning section 106. In supervising compliance by banking 
organizations with section 106 and this interpretation, the Board will 
take into account whether the manner of applying section 106 or the 
Board's interpretation in the context of a particular practice was 
unclear before this document was issued.
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    \9\ Pub. L. No. 106-102, 113 Stat. 1338 (1999).
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Outline of the Proposed Interpretation and Supervisory Guidance

    The proposed statement explains the Board's interpretation of 
section 106. The statement also sets forth the principles that the 
Board will apply in enforcing the statute and in assessing the anti-
tying policies, procedures and systems of banks during the supervisory 
process. The Board has consulted extensively with the Office of the 
Comptroller of the Currency in developing the interpretation and 
supervisory guidance.
    The statement is divided into several parts. The first six parts 
(Parts I-VI) are a proposed Board interpretation of section 106. These 
parts describe the types of bank conduct that are prohibited by section 
106 (Part II), explain the essential elements of a tying arrangement 
prohibited by section 106 (Part III), and describe the statutory and 
regulatory exceptions to the anti-tying prohibitions of section 106 
(Part IV). The remainder of these six parts provide an introduction to 
the statement (Part I) and discuss the scope of the terms ``bank'' and 
``affiliate'' for purposes of section 106 and the statement (Parts V 
and VI).
    The final part of the statement (Part VII) discusses the policies, 
procedures and systems that should help banks ensure and monitor their 
compliance with section 106. This section is guidance that the Board 
proposes to follow in its supervision of banking organizations going 
forward.
    The interpretation discusses a wide variety of issues related to 
section 106. Among other matters, the Board's interpretation addresses 
(i) the scope of the statutory and regulatory traditional bank product 
exceptions, including the types of products that would qualify as a 
traditional bank product (i.e., a ``loan, discount, deposit, or trust 
service'') for purposes of the exceptions; (ii) the permissibility 
under section 106 of relationship banking programs that involve both 
traditional bank products and other products (referred to in the 
interpretation and guidance as ``mixed-product arrangements''); and 
(iii) whether tying arrangements voluntarily sought or demanded by a 
customer are permissible under section 106. The interpretation also 
includes examples of the types of conduct, actions and arrangements by 
banks that are prohibited and permissible under section 106. These 
examples, which are included for illustrative purposes, are based 
solely on the facts stated in the example. Because the determination of 
whether a violation of section 106 has occurred is fact specific, these 
examples by themselves do not represent a finding that any past action 
by a particular bank violated the statute.
    The Board seeks comment on all aspects of the proposed 
interpretation and supervisory guidance. In addition, the Board asks 
commenters to identify and discuss any section 106 interpretive or 
compliance issues that are not addressed in the statement but that, in 
the view of commenters, would be of sufficient importance and general 
interest to address either in the Board's interpretation or supervisory 
guidance.
    The proposed interpretation and related supervisory guidance 
follows.

Interpretation of the Anti-tying Restrictions of Section 106 of the 
Bank Holding Company Act Amendments of 1970 and Related Supervisory 
Guidance

I. Introduction

    The anti-tying provisions of section 106 of the Bank Holding 
Company Act Amendments of 1970 (``section 106'' or the ``anti-tying 
prohibitions'') prohibit certain forms of tying by banks.\10\ The 
statute is intended to prevent banks from using their ability to offer 
bank products, credit in particular, in a coercive manner to gain a 
competitive advantage in markets for other products and services. 
Although section 106 sets forth an absolute bar to certain forms of 
tying by banks, the statute permits other types of tying and permits 
the Board to grant additional exceptions to its prohibitions. 
Violations of section 106 may be addressed by the bank's appropriate 
Federal banking agency through an enforcement action, by the Department 
of Justice through a request for an injunction, or by a customer or 
other person injured by the illegal tying arrangement through a request 
for an injunction or an action for damages.\11\
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    \10\ 12 U.S.C. 1972(1).
    \11\ 12 U.S.C. 1972, 1973, 1975 and 1976.
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    This statement explains the Board's interpretation of the 
prohibitions of, and statutory and regulatory exceptions to, section 
106. This statement also reflects the principles and factors that the 
Board will apply in conducting anti-tying reviews at banking 
organizations and enforcing section 106. In addition, Part VII of this 
statement includes supervisory guidance outlining the types of anti-
tying policies, procedures and systems that the Board believes will 
help banks ensure compliance with section 106.
    Banks and their affiliates also are subject to the tying 
restrictions contained in the Sherman Act and the Clayton Act that 
apply to all persons acting in interstate commerce.\12\ This statement 
does not address the applicability of these general antitrust laws, 
which are within the jurisdiction of the Department of Justice. This 
statement also does not address the treatment of arrangements involving 
customers and banks and their affiliates under other Federal or state 
laws, including sections 23A and 23B of the Federal Reserve Act (12 
U.S.C. 371c, 371c-1) and the Real Estate Settlement Procedures Act (12 
U.S.C. 2601 et seq.).
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    \12\ 15 U.S.C. 1 et seq.; 15 U.S.C. 12 et seq.
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II. What Conduct Is Prohibited by Section 106?

    Section 106 prohibits a bank from extending credit, leasing or 
selling any property or furnishing any service, or fixing or varying 
the consideration for any of the foregoing, on the condition or 
requirement that the customer do any of the following:
    1. Obtain some additional credit, property or service from the 
bank, other than a loan, discount, deposit or trust service;
    2. Provide some additional credit, property or service to the bank, 
other than those related to and usually provided in connection with a 
loan, discount, deposit or trust service;

[[Page 52026]]

    3. Obtain from or provide to an affiliate of the bank some 
additional credit, property or service; or
    4. Not obtain some additional credit, property or service from a 
competitor of the bank or of an affiliate of the bank, unless the 
condition is reasonably imposed in a credit transaction to ensure the 
soundness of the credit.\13\
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    \13\ For a discussion of the definition of the terms ``bank'' 
and ``affiliate,'' see Parts V and VI, respectively.
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    As this list illustrates, section 106 prohibits banks from imposing 
certain tying arrangements as well as certain reciprocity and exclusive 
dealing arrangements on their customers.\14\ Thus, for example, section 
106 prohibits a bank from imposing a condition on a prospective 
borrower that requires the borrower to do any of the following in order 
to obtain a loan from the bank--
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    \14\ ``Tying arrangements'' are arrangements that require a 
customer to obtain a product from the bank or one of its affiliates 
as a condition of the bank providing another product to the 
customer. ``Reciprocity arrangements'' are arrangements that require 
a customer to provide a product to the bank or one of its affiliates 
as a condition of the bank providing another product to the 
customer. ``Exclusive dealing arrangements'' are arrangements that 
require a customer not to obtain a product from a competitor of the 
bank or of an affiliate as a condition of the bank providing another 
product to the customer.
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    [sbull] Purchase an insurance product from the bank or an affiliate 
of the bank (a prohibited tie);
    [sbull] Obtain corporate debt or equity underwriting services from 
an affiliate of the bank (a prohibited tie);
    [sbull] Sell the bank or an affiliate of the bank a piece of real 
estate unrelated to the requested loan (a prohibited reciprocity 
arrangement); or
    [sbull] Refrain from obtaining insurance products or securities 
underwriting services from a competitor of the bank or from a 
competitor of an affiliate of the bank (a prohibited exclusive dealing 
arrangement).
    For ease of reference, this statement uses the phrase ``tying 
arrangement'' to refer to all types of tying, reciprocity and exclusive 
dealing arrangements described in section 106. In addition, although 
section 106 generally refers to ``credit,'' ``property'' or ``service'' 
in describing the items sought or required to be obtained from (or 
provided to) the bank or an affiliate, this statement uses the term 
``product'' to refer to any type of credit, property or service.
    There are several noteworthy points about the anti-tying 
prohibitions of section 106. First, section 106 does not require a bank 
to extend credit or provide any other product to any customer. That is, 
section 106 does not prohibit a bank from declining to provide credit 
or any other product to a customer so long as the bank's decision is 
not based on the customer's failure to satisfy a condition or 
requirement prohibited by section 106. Thus, for example, section 106 
does not prohibit a bank from denying credit to a customer on the basis 
of the customer's financial condition, financial resources or credit 
history, or because the bank does not offer (or seeks to exit the 
market for) the type of credit requested by the customer.
    Second, section 106 applies only to tying arrangements that are 
imposed by a bank. The statute does not apply to tying arrangements 
imposed by a nonbank affiliate of a bank.\15\ For example, section 106 
prohibits a bank from requiring a person to purchase insurance from the 
bank's insurance affiliate in order to obtain a reduced interest rate 
on a loan from the bank. Importantly, such an arrangement is prohibited 
by section 106 even if the customer is informed of the bank's reduced-
rate offer by the bank's insurance affiliate (for example, when the 
customer applies to the insurance affiliate to obtain insurance). In 
either case, it is the bank that is varying the price of a bank product 
(the loan) based on a requirement that the customer obtain another 
product (insurance) from an affiliate. Such action by the bank violates 
section 106.
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    \15\ Tying arrangements imposed by a nonbank affiliate of a bank 
are, however, subject to the anti-tying restrictions of the general 
antitrust laws.
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    On the other hand, section 106 does not apply to the insurance 
agency affiliate of the bank.\16\ Thus, section 106 would not prohibit 
the insurance agency affiliate of a bank from offering a discount on 
the premiums the affiliate charges to customers that purchase more than 
one type of insurance (e.g., homeowners and automobile insurance) from 
the affiliate. In addition, section 106 would not prohibit the 
insurance agency affiliate from offering discounts on premiums to 
customers who also have a loan from, or deposit account with, the bank. 
In both of these cases, it is the affiliate (and not the bank) that has 
imposed the condition governing the sale of its products.\17\
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    \16\ There is one exception to the general rule that affiliates 
of a bank are not subject to section 106. This exception is 
discussed in Part V.
    \17\ A bank, however, may not evade the prohibitions of section 
106 by engaging jointly with an affiliate in a transaction in which 
the affiliate nominally imposes a condition on the customer that the 
bank is prohibited from imposing on the customer under section 106. 
Part VI of this statement provides some examples of situations when 
a tie that is nominally imposed by an affiliate of a bank will be 
viewed as a tie imposed by the bank for purposes of section 106.
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    Third, section 106 covers some activities that are not included in 
the conventional notion of tying. Namely, section 106 prohibits banks 
from granting certain types of price discounts--that is, varying the 
price of a product on the condition that the customer purchase one or 
more other products from the bank or an affiliate. Thus, section 106 
may restrict the ability of banks to provide price discounts (including 
rebates) on bundled products depending on what products are in the 
bundle and which ones are discounted. Section 106 does not, however, 
prohibit a bank from discounting the price of an individual product for 
reasons that are unrelated to another product. For example, a bank may 
offer a customer a discount on the purchase of an individual product in 
light of the amount of the individual product proposed to be purchased 
by the customer, the creditworthiness of the customer, or the unique 
features of the product or transaction.
    Fourth, several important exceptions exist to the general 
prohibitions of section 106. For example, the statute itself expressly 
permits a bank to condition the availability or price of a product on a 
requirement that the customer also obtain a loan, discount, deposit or 
trust service from the bank. The statute also expressly permits a bank 
to condition the availability or price of a product on a requirement 
that the customer provide the bank some additional product that is 
related to and usually provided in connection with a loan, discount, 
deposit or trust service. The Board, acting pursuant to authority 
conferred by section 106, also has adopted by regulation several 
important exceptions to the statute's anti-tying restrictions.\18\ The 
statutory and regulatory exceptions to section 106 are discussed in 
Part IV of this statement.
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    \18\ 12 U.S.C. 1972(1). The exceptions to section 106 adopted by 
the Board by regulation are codified in section 225.7 of the Board's 
Regulation Y (12 CFR 225.7).
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    Because of the statute's complexity and the importance of the 
actions, statements and policies of the bank in analyzing whether 
section 106 has been violated, the determination of whether a violation 
of section 106 has occurred often requires a careful review of the 
specific facts and circumstances associated with the relevant 
transaction (or proposed transaction) between the bank and the 
customer. Banks should establish and maintain policies, procedures and 
systems that, in light of the nature, scope and complexity of the 
bank's activities, are reasonably designed to ensure that the bank's 
employees and representatives are trained appropriately concerning the

[[Page 52027]]

anti-tying prohibitions of section 106 and that the bank complies with 
the statute. Part VII of this statement discusses the types of 
policies, procedures and systems that should help banks comply with the 
anti-tying restrictions of section 106.
    Bank customers that believe they have been the object of a tying 
arrangement prohibited by section 106 are encouraged to contact the 
appropriate Federal banking agency for the bank involved. These 
agencies are the Office of the Comptroller of the Currency for national 
banks, the Board for state-chartered banks that are members of the 
Federal Reserve System (``state member banks''), and the Federal 
Deposit Insurance Corporation for state-chartered banks that are not 
members of the Federal Reserve System (``state non-member banks'').
    Savings associations are subject to anti-tying restrictions under 
the Home Owners' Loan Act (HOLA) that are virtually identical to those 
applicable to banks under section 106.\19\ Customers of a savings 
association that believe the savings association has violated the anti-
tying restrictions of the HOLA should contact the Office of Thrift 
Supervision.
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    \19\ See 12 U.S.C. 1464(q); Integon Life Insurance Corp. v. 
Browning, 989 F.2d 1143, 1149 (11th Cir. 1993).
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III. What Are the Essential Elements of an Impermissible Tying 
Arrangement Under Section 106?

    Congress modeled section 106 on the anti-tying principles developed 
under the general antitrust laws (the Sherman and Clayton Acts), which 
apply to all companies, including banks and their affiliates, that act 
in interstate commerce. As a general matter, a tying arrangement 
violates the Sherman and Clayton Acts if:
    (1) The arrangement involves two or more separate products;
    (2) The seller forces a customer seeking to purchase one of the 
products (the ``desired product'') also to purchase the other product;
    (3) The seller has sufficient economic power in the market for the 
desired product to enable it to restrain trade in the market for the 
other product;
    (4) The arrangement has anti-competitive effects in the market for 
the other product; and
    (5) The arrangement affects a ``not insubstantial'' amount of 
interstate commerce.\20\
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    \20\ See Yentsch v. Texaco, Inc., 630 F.2d 46 (2d Cir. 1980); 
Tic-X-Press, Inc. v. Omni Promotions Co., 815 F.2d 1407 (11th Cir. 
1987); see also 9 Phillip Areeda, Antitrust Law at ] 1702 (1991). A 
tying arrangement may be found to be per se illegal under the 
general antitrust laws without any showing of anti-competitive 
effects in the market for the other product if the seller has 
sufficiently strong economic power in the market for the desired 
product. See Jefferson Parish Hospital District No. 2 v. Hyde, 466 
U.S. 2 (1984). In these cases, the courts essentially assume that 
the tying arrangement, combined with the seller's strong economic 
position in the market for the desired product, has or will produce 
anti-competitive effects. Id. at 16, n. 25.
    In conventional antitrust parlance, the desired product is known 
as the ``tying product,'' because it is customers' desire to obtain 
it that allows a producer to tie other, possibly unwanted products--
the tied products--to it. In the interest of clarity, this statement 
uses the term ``desired product'' instead of ``tying product.''
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    Although tying arrangements by banks are subject to the general 
antitrust laws, Congress determined to subject tying arrangements by a 
bank to a stricter standard. As a general matter, there are only two 
essential elements that must be shown to establish that a tying 
arrangement by a bank violates section 106:
    (1) The arrangement must involve two or more separate products: the 
customer's desired product(s) and one or more separate tied products; 
and
    (2) The bank must force the customer to obtain (or provide) the 
tied product(s) from (or to) the bank or an affiliate in order to 
obtain the customer's desired product(s) from the bank.\21\
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    \21\ Legislative history indicates that economic power, anti-
competitive effects, and effects on interstate commerce are not 
necessary elements of a section 106 claim. See S. Rep. No. 1084, 
91st Cong., 2d Sess. (1970), reprinted in 1970 U.S.C.C.A.N. 5519, 
5558 (``Senate Report'') (Supplementary views of Sen. Brooke); 
Senate Report at 5547 (Supplementary views of Senators Bennett, 
Tower, Percy and Packwood); see also Integon Life Insurance Corp. v 
Browning, 989 F.2d 1143 (11th Cir. 1993); Amerifirst Properties, 
Inc. v. FDIC, 880 F.2d 821 (5th Cir. 1989); 62 FR 9290, 9313, Feb. 
28, 1997; 59 FR 65473, Dec. 20, 1994.
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    This Part III discusses the essential elements of any prohibited 
tying arrangement under section 106.\22\ Part IV discusses the 
statutory and regulatory exceptions to these general rules, as well as 
special issues that arise in applying these exceptions.
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    \22\ The exclusive dealing prohibition in section 106 (12 U.S.C. 
1972(1)(E)) also prohibits a bank from requiring that a customer 
refrain from obtaining another product from a competitor of the bank 
or of an affiliate in order to obtain the customer's desired 
product. Although exclusive dealing arrangements are not 
specifically discussed in this Part III, the elements discussed in 
this Part III are equally applicable to exclusive dealing 
arrangements prohibited by section 106.
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A. Arrangement Must Involve Two Products--a Desired Product and a Tied 
Product.
    In order for a tying arrangement to exist under section 106, the 
arrangement must involve two or more separate products. A bank does not 
violate section 106 by requiring a customer to obtain (or provide) two 
or more aspects of a single product from (or to) the bank or an 
affiliate, or by conditioning the availability or varying the price of 
a product on the basis of the characteristics or terms of that 
product.\23\ For example, a bank does not violate section 106 by 
requiring--
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    \23\ As a general matter, two products are separate and distinct 
for purposes of section 106 only if there is sufficient consumer 
demand for each of the products individually that it would be 
efficient for a firm to provide the two products separately. See 
Eastman Kodak Co. v. Image Technical Services, Inc., 504 U.S. 451, 
462 (1992); Jefferson Parish Hospital District No. 2 v. Hyde, 466 
U.S. 2, 19 (1984). Determining whether sufficient consumer demand 
exists for the two products separately often is a highly fact-
intensive inquiry that depends on the nature and character of the 
products and markets involved. See 2 Joseph P. Bauer and William H. 
Page, Kintner Federal Antitrust Law 13.17 (2002).
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    [sbull] A prospective borrower to provide the bank specified 
collateral in order to obtain the loan or to obtain the loan at a 
favorable interest rate; or
    [sbull] An existing borrower to post additional collateral, accept 
a higher interest rate, or provide updated or additional financial 
information as a condition of renewal of the loan.
    In such circumstances, the bank's conditions relate to the single 
product sought by the customer (a loan) and do not involve separate, 
distinguishable products.\24\
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    \24\ A tying arrangement, however, may exist where a bank 
imposes a condition that involves two separate products of the same 
type (e.g., two separate insurance products).
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    In applying section 106, it is useful to identify which of the 
separate products is the ``tied product'' and which is the ``desired 
product.'' The ``tied product'' is the product that the customer is 
required to obtain (or provide) in order to have access to or get a 
price discount on the ``desired product.'' Section 106 is premised on 
the notion that the ``desired product'' is the product the customer 
really seeks.
    To illustrate, suppose a customer seeks a mortgage loan (the 
desired product) from a bank. Section 106 prohibits a bank from 
requiring that the customer purchase homeowners insurance (the tied 
product) from the bank or an affiliate of the bank as a condition to 
granting the customer the mortgage loan or a discount on the loan. 
However, as discussed in Part IV, some exceptions from the statute's 
prohibitions are available where the tied product is a traditional bank 
product (that is a loan, discount, deposit or trust service). The Board 
notes that certain types of derivative products, such as interest rate 
and foreign exchange swaps, often are sold by banks and purchased by 
customers in connection with lending transactions. The Board

[[Page 52028]]

requests comment on how interest rate swaps, foreign exchange swaps, 
and other derivative products that often are connected with lending 
transactions should be treated under section 106.
B. Bank--Imposed Condition or requirement.
    Section 106 applies only if a bank provides or offers to provide a 
customer one product (the desired product), or a discount on the 
desired product, ``on the condition or requirement'' that the customer 
obtain (or provide) an additional product (the tied product) from (or 
to) the bank or an affiliate. This element of section 106 was modeled 
on the tying prohibitions in the general antitrust laws.
    Under the general antitrust laws, an illegal tie exists only where 
the seller forces the customer to purchase the tied product in order 
for the customer to obtain its desired product.\25\ Accordingly, a 
seller engages in an illegal tie under the general antitrust laws only 
if it requires the customer to purchase the tied product to obtain the 
customer's desired product.\26\ Moreover, the evidence must demonstrate 
that the seller imposed the arrangement on the customer through some 
type of coercion.\27\ Thus, the courts have held that a seller's 
bundled sale of multiple products to a customer does not violate the 
general antitrust laws if the customer voluntarily decided to purchase 
the package of products from the seller.\28\ In such circumstances, the 
seller has not coerced or forced the buyer to purchase any product from 
the seller.
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    \25\ See Times-Picayune Publishing Co. v. United States, 345 
U.S. 594, 614 (1953) (``The common core of . . . unlawful tying 
arrangements is the forced purchase of a second distinct commodity 
with the desired purchase of a dominant `tying' product'')(emphasis 
added); see also Datagate, Inc. v. Hewlett-Packard Co., 60 F.3d 1421 
(9th Cir. 1995), cert. denied 517 U.S. 1115 (1996); Thompson v. 
Multi-List, Inc., 934 F.2d 1566, 1577-78 (11th Cir. 1991), reh'g en 
banc denied 946 F.2d 906 (1991); Yentsch v. Texaco, Inc., 630 F.2d 
46, 56-57 (2d Cir. 1980); Response of Carolina, Inc. v. Leasco 
Response, Inc., 537 F.2d 1307, 1327 (5th Cir. 1976); American 
Manufacturers Mut. Ins. Co. v. American Broadcasting-Paramount 
Theatres, Inc., 446 F.2d 1131, 1137 (2d Cir. 1971), cert. denied 404 
U.S. 1063 (1972).
    \26\ See, e.g., Northern Pacific Ry. v. United States, 356 U.S. 
1, 5-6 (1958) (``a tying arrangement may be defined as an agreement 
by one party to sell one product only on the condition that the 
buyer also purchases a different (or tied) product'') (emphasis 
supplied); Tic-X-Press, Inc. v. Omni Promotions Co., 815 F.2d 1407, 
1415-17 (11th Cir. 1987); 9 Phillip Areeda, Antitrust Law at ] 1752 
(1991) (``There is no tie for any antitrust purpose unless the 
defendant improperly imposes conditions that explicitly or 
practically require buyers to take the second product if they want 
the first one.'')
    \27\ See, e.g., Thompson v. Multi-List, Inc., 934 F.2d 1566, 
1577-78 (11th Cir. 1991), reh'g en banc denied 946 F.2d 906 (1991); 
Tic-X-Press, Inc. v. Omni Promotions Co., 815 F.2d 1407, 1415 & 
1418-19 (11th Cir. 1987); Unijax, Inc. v. Champion Int'l, Inc., 683 
F.2d 678, 685 (2d Cir. 1982) (``Actual coercion by the seller that 
in fact forces the buyer to purchase the tied product is an 
indispensable element of a tying violation.''); Bob Maxfield, Inc. 
v. American Motors Corp., 637 F.2d 1033, 1037 (5th Cir.) (``actual 
coercion is an indispensable element of a tie-in charge''), cert. 
denied 454 U.S. 860 (1981).
    \28\ See, e.g., Tic-X-Press, Inc. v. Omni Promotions Co., 815 
F.2d 1407, 1417 (11th Cir. 1987) (``two products are not tied as a 
matter of antitrust law if the buyer voluntarily purchases the tied 
product''); Sports Form, Inc. v. United Press International, Inc., 
686 F.2d 750, 754 (9th Cir. 1982) (``Where a company is simply sold 
what it wishes to buy, there can be no tying problem.''); Dunkin 
Donuts of America, Inc. v. Dunkin Donuts, Inc., 531 F.2d 1211, 1224 
(3d Cir.), cert. denied 429 U.S. 823 (1976) (``a voluntary purchase 
of two products is simply not a tie-in''); Capital Temporaries, Inc. 
v. Olsten Corporation, 506 F.2d 658, 662 (2d Cir. 1974) (``We do not 
think that there can be any question that no tying arrangement can 
possibly exist unless the person aggrieved can establish that he has 
been required to purchase something which he does not want to 
take.'')
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    The language and legislative history of section 106 indicate that 
this distinction between an arrangement imposed by the seller and one 
voluntarily sought by the customer also is embedded in section 106.\29\ 
Accordingly, section 106 applies only if each of two requirements are 
met: (1) A condition or requirement exists that ties the customer's 
desired product to another product; and (2) this condition or 
requirement was imposed or forced on the customer by the bank.\30\
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    \29\ See Conf. Rep. No. 1747, 91st Cong., 2d Sess., reprinted in 
1970 U.S.C.C.A.N. 5561, 5569 (``Conference Report'').
    \30\ As discussed in Part IV, exceptions to section 106 allow a 
bank to impose a condition on a customer in certain circumstances 
where the tied product is a traditional bank product. In addition, 
as discussed in Part IV, arrangements that allow the customer the 
option to satisfy a condition imposed by the bank through the 
purchase of traditional bank products or other products do not force 
a customer to purchase a non-traditional product in violation of 
section 106 if the customer has a meaningful choice of satisfying 
the condition solely through the purchase of traditional bank 
products.
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    1. Existence of a condition or requirement.
    First, a violation of section 106 may occur only when a customer is 
required to obtain an additional product from, or provide an additional 
product to, the bank or an affiliate in order to obtain the customer's 
desired product or a discount on the desired product.\31\ It is the 
existence of such a requirement that forms the heart of an illegal 
tying arrangement. Absent a requirement that the customer obtain a 
separate product from, or provide a separate product to, the bank or an 
affiliate, there is no ``tie'' between the customer's desired product 
and another product.
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    \31\ See Conference Report at 5580 (Section 106 ``prohibits any 
subsidiary bank from providing any credit, property or service for a 
customer on the condition that he must obtain from, or provide to, 
the holding company or any other subsidiary thereof some additional 
credit, property or service.''); Senate Report at 5535 (``The 
purpose of [the anti-tying provisions] is to prohibit anti-
competitive practices which require bank customers to accept or 
provide some other service or product or refrain from dealing with 
other parties in order to obtain the bank product or services they 
desire.''); see also Integon Life Insurance Corp. v Browning, 989 
F.2d 1143 (11th Cir. 1993); Tose v. First Pennsylvania Bank, 648 
F.2d 879 (3rd Cir. 1981), cert. denied 454 U.S. 893 (1981); Duryea 
v. Third Northwestern National Bank, 606 F.2d 823 (8th Cir. 1979); 
Stefiuk v. First Union, 61 F. Supp.2d 1294 (S.D. Fla. 1999), aff'd 
without opinion 207 F.3d 664 (11th Cir. 2000).
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    Thus, for example, a bank would violate section 106 if the bank 
informs a customer seeking only a loan from the bank that the bank will 
make the loan only if the customer commits to hire the bank's 
securities affiliate to underwrite an upcoming bond offering for the 
customer. In this example, the bank has conditioned the availability of 
credit to the customer on a requirement that the customer obtain 
another product (bond underwriting services) from an affiliate of the 
bank.
    Section 106, however, does not prohibit a customer from deciding on 
its own to award some of its business to a bank or an affiliate as a 
reward for the bank previously providing credit or other products to 
the customer. Using the example in the previous paragraph, if the bank 
made the loan to the customer without conditioning it on a requirement 
that the customer obtain one or more additional products from the bank 
or an affiliate, then no tie actionable under section 106 would exist 
if the customer later voluntarily decides to award some of its 
securities underwriting business to the bank's securities affiliate.
    In addition, section 106 does not prohibit a bank from granting 
credit or providing any other product to a customer based solely on a 
desire or hope (but not a requirement) that the customer will obtain 
additional products from the bank or its affiliates in the future. This 
is true even if the bank conveys to the customer this desire or hope 
for additional business. Section 106 also does not prohibit a bank from 
cross-marketing the full range of products offered by the bank or its 
affiliates to a customer or encouraging an existing customer to 
purchase additional products offered by the bank or its affiliates. 
Cross-marketing and cross-selling activities, whether suggestive or 
aggressive, are part of the nature of ordinary business dealings and do 
not, in and of themselves, represent a violation of section 106. 
However, bank actions that go beyond cross-marketing or cross-selling 
and that

[[Page 52029]]

indicate that the bank will not provide the customer the desired 
product unless the customer obtains (or provides) another product from 
(or to) the bank or an affiliate do raise issues under section 106.
    Importantly, a prohibited tying arrangement does not exist if the 
bank offers the customer the opportunity to obtain the customer's 
desired product (or a discount on the desired product) from the bank 
separately from the allegedly tied product. That is, if the customer 
was offered the option of obtaining the customer's desired product or 
discount from the bank without also obtaining (or providing) the 
allegedly tied product from (or to) the bank or an affiliate, then the 
customer was not required to obtain (or provide) the other product to 
obtain the desired product or discount. In such circumstances, no 
``tie'' would exist between the two products for purposes of section 
106.\32\
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    \32\ See John Doe v. Norwest Bank Minnesota, N.A., 107 F.3d 
1297, 1304 (8th Cir. 1997); Stefiuk v. First Union Nat'l Bank, 61 F. 
Supp. 2d 1294, 1299 (S.D. Fla. 1999), aff'd without opinion 207 F.3d 
664 (11th Cir. 2000); Nordic Bank PLC v. Trend Group, Ltd., 619 F. 
Supp. 542, 553 (S.D.N.Y. 1985).
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    2. Condition or requirement was imposed or forced on the customer 
by the bank.
    Even if a condition or requirement exists tying the customer's 
desired product to another product, a violation of section 106 may 
occur only if the condition or requirement was imposed or forced on the 
customer by the bank.\33\ In this regard, section 106 was intended to 
prohibit banks from using their ability to offer bank products, and 
credit in particular, as leverage to force a customer to purchase (or 
provide) another product from (or to) the bank or an affiliate.\34\ It 
was not the purpose of the statute to prohibit bank customers from 
using their own bargaining power to obtain a package of desired 
products from a bank and its affiliates or a price discount on those 
products. Similarly, it was not the purpose of the statute to prohibit 
customers from voluntarily seeking and obtaining multiple products that 
the customer desires from a bank or its affiliates.\35\
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    \33\ See 116 Cong. Rec. S15708 (daily ed. Sept. 16, 1970) (``The 
bill as amended would require that a condition or requirement 
imposed by the bank must be demonstrated in order to prove that a 
violation of [section 106] has occurred.'') (Statement of Sen. 
Bennett).
    \34\ See Conference Report at 5569 (``Section 106 of the bill, 
which has become known as the anti-tie-in section, will largely 
prevent coercive tie-ins and reciprocity.''); 116 Cong. Rec. S20647 
(daily ed. Dec. 18, 1970) (Statement of Sen. Brooke) (violation of 
section 106 occurs ``where the totality of the circumstances 
indicates that the customer has not voluntarily entered into the 
transaction, but rather has been induced into doing so through 
coercion''); 116 Cong. Rec. S15709 (daily ed. Sept. 16, 1970) 
(attaching letter from Arthur Burns, Chairman of the Board of 
Governors of the Federal Reserve System, noting that section 106 
``would prohibit coercive tie-ins involving banks, bank holding 
companies, and their subsidiaries'').
    \35\ See Conference Report at 5569; 116 Cong. Rec. S16316 (daily 
ed. Sept. 23, 1970) (Remarks of Donald I. Baker, Deputy Director of 
Policy Planning, Antitrust Division, Department of Justice, 
submitted by Senator Proxmire). The statute's legislative history, 
for example, indicates that a voluntary tie-in may occur when a 
customer believes that it stands a better chance of ``securing a 
scarce and important commodity (such as credit) by `volunteering' to 
accept other products or services'' from the bank or its affiliates. 
Although the statute's legislative history characterizes this type 
of voluntary tying as generally being undesirable, it also 
explicitly states that such voluntary tying is not prohibited by 
section 106. See Conference Report at 5569. The Board also has noted 
previously that section 106 prohibits coercive tying arrangements, 
but does not prohibit voluntary tying. See, e.g., Mercantile 
Bancorporation, 66 Federal Reserve Bulletin 799 (1980); Barnett 
Banks, Inc., 61 Federal Reserve Bulletin 678 (1975).
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    Accordingly, if a condition or requirement exists, further inquiry 
may be necessary to determine whether the condition or requirement was 
imposed or forced on the customer by the bank. If the condition or 
requirement resulted from coercion by the bank, then the condition or 
requirement violates section 106, unless an exemption is available for 
the transaction.\36\ Prohibited coercive actions may be explicit or 
implicit. In some cases, a bank's coercive behavior may be clear from 
the agreement or conversations between the bank and the customer. In 
other cases, coercion may be implicit and reasonably inferred from the 
facts and circumstances surrounding the transaction.
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    \36\ The Board recognizes that some courts have held that a 
tying arrangement may violate section 106 without a showing that the 
arrangement resulted from any type of coercion by the bank. See, 
e.g., Dibidale of Louisiana, Inc. v. American Bank & Trust Company, 
916 F.2d 300 (5th Cir. 1990). After carefully reviewing the 
language, legislative history and purposes of the statute, the Board 
believes the better interpretation of section 106 is that a 
violation may exist only if a bank forces or coerces a customer to 
obtain (or provide) the tied product as a condition to obtaining the 
customer's desired product.
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    On the other hand, if a condition or requirement was voluntarily 
sought or imposed by the customer, then the arrangement results from 
the free choice of the customer and no violation of section 106 has 
occurred. Thus, for example, a violation of section 106 does not occur 
if a large corporate customer of a bank demands that the bank provide 
the customer one product (such as a loan) in order for the bank or its 
affiliates to obtain other business from the customer (such as bond 
underwriting business), and the bank agrees to the customer's 
condition. In such circumstances, it is the customer that is using its 
business as leverage to obtain the products it desires--an action that 
does not implicate the purposes or proscriptions of section 106. 
Likewise, a violation of section 106 does not occur if a customer 
seeking to engage in a multi-faceted corporate transaction voluntarily 
solicits a bid from a bank and its securities affiliate for a package 
of products related to the transaction (such as a bridge loan, 
strategic advisory services, and bond underwriting services) and the 
bank and the securities affiliate offer to provide the customer all of 
the requested products.
    3. Factual inquiry required.
    As the foregoing illustrates, the specific facts and circumstances 
surrounding the bank-customer relationship often will be critical in 
determining whether a prohibited condition or requirement existed and 
whether the condition or requirement was imposed or forced on the 
customer by the bank or was volunteered or sought by the customer. 
Typically, the terms of the bank's offer to the customer or the 
agreement entered into between the bank and the customer will provide 
the best evidence of whether the customer was required to purchase (or 
provide) an additional product as a condition of obtaining the 
customer's desired product. The timing and sequence of the offers, 
purchases or other transactions between the customer and the bank or 
its affiliates that form the basis of the alleged tying arrangement, 
and the nature of the condition or requirement itself, also may be 
particularly relevant in determining whether the customer was required 
to obtain (or provide) the tied product in order to obtain the desired 
product.
    Other information that may be useful in determining whether a 
condition or requirement exists and, if so, whether the bank coerced 
the customer into accepting the condition or requirement include any 
correspondence and conversations between the bank and the customer 
concerning the transaction; the marketing or other materials presented 
to the customer by the bank or an affiliate; the bank's course of 
dealings with the customer and other similarly situated customers; the 
banking organization's policies and procedures; the customer's course 
of dealings with the bank and other financial institutions; the 
financial resources and level of sophistication of the customer; and 
whether the customer was represented by legal counsel or other 
advisors.

[[Page 52030]]

IV. What Are the Exceptions to the Anti-Tying Prohibitions of Section 
106?

    Section 106 contains several exceptions to its anti-tying 
prohibitions. Congress also authorized the Board to grant additional 
exceptions from the statute's prohibitions, by regulation or order, if 
the Board determines the exception ``will not be contrary to the 
purposes of [section 106].'' \37\ The exceptions adopted by Congress 
and the authorization granted to the Board to grant additional 
exceptions were intended in part to ensure that section 106 did not 
interfere with the conduct of appropriate traditional banking 
practices.\38\
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    \37\ 12 U.S.C. 1972(1). The exceptions that the Board has 
adopted by regulation are set forth at section 225.7(b) of the 
Board's Regulation Y (12 CFR 225.7(b)). Regulation Y expressly 
permits the Board to terminate the eligibility of a bank to operate 
under any exception set forth in section 225.7(b) if the Board finds 
the activities conducted by the bank under the exception result in 
anti-competitive practices. 12 CFR 225.7(c).
    \38\ See 116 Cong. Rec. S15708 (daily ed. Sept. 16, 1970) 
(Statement of Sen. Bennett); see also Senate Report at 5535.
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A. Tying Arrangements Involving Traditional Bank Products.
    1. Statutory and regulatory exceptions.
    Section 106 specifically allows a bank to condition both the 
availability and price of any bank product (the desired product) on the 
requirement that the customer obtain a ``traditional bank product'' 
(the tied product) from the bank. One of the purposes of this exception 
was to allow banks and their customers to continue to negotiate their 
fee arrangements on the basis of the customer's entire banking 
relationship with the bank.\39\ The Board has extended this exception 
by regulation to include situations where the tied product is a 
traditional bank product offered by an affiliate of the bank, rather 
than by the bank itself.\40\ Taken together, these exceptions allow a 
bank to restrict the availability or vary the price of any bank product 
on the condition that the customer also obtain a traditional bank 
product from the bank or an affiliate of the bank.
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    \39\ See id.
    \40\ See 12 CFR 225.7(b)(1)(i).
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    Several facts are important in determining whether the traditional 
bank product exceptions apply in a given situation. First, the 
exceptions are available only if the tied product is a traditional bank 
product. The availability of the exceptions, however, does not depend 
on the type of desired product involved; the desired product may or may 
not be a traditional bank product.
    Second, the exceptions apply only if the tied product is a defined 
traditional bank product. The statute defines a traditional bank 
product to be a ``loan, discount, deposit, or trust service.'' \41\ The 
statute also defines a ``trust service'' to mean any service 
customarily performed by a bank trust department.\42\ Products that 
fall within the scope of these terms include, among other things, the 
following:
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    \41\ 12 U.S.C. 1972(1)(A).
    \42\ Id. at section 1971. A product that meets this ``trust 
service'' standard is a traditional bank product even if the bank or 
affiliate providing the product does not have, or does not provide 
the product through, a trust department.
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    [sbull] All types of extensions of credit, including loans, lines 
of credit, and backup lines of credit; \43\
---------------------------------------------------------------------------

    \43\ An ``extension of credit'' for this purpose does not 
include underwriting, privately placing or brokering debt 
securities.
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    [sbull] Letters of credit and financial guarantees;
    [sbull] Lease transactions that are the functional equivalent of an 
extension of credit; \44\
---------------------------------------------------------------------------

    \44\ ``CEBA leases'' that are entered into by banks pursuant to 
12 U.S.C. 24 (Tenth) are not considered to be the functional 
equivalent of an extension of credit.
---------------------------------------------------------------------------

    [sbull] Credit derivatives where the bank or affiliate is the 
seller of credit protection;
    [sbull] Acquiring, brokering, arranging, syndicating and servicing 
loans or other extensions of credit;
    [sbull] All forms of deposit accounts, including demand, negotiable 
order of withdrawal (``NOW''), savings and time deposit accounts;
    [sbull] Safe deposit box services;
    [sbull] Escrow services;
    [sbull] Payment and settlement services, including check clearing, 
check guaranty, ACH, wire transfer, and debit card services;
    [sbull] Payroll services;
    [sbull] Traveler's check and money order services;
    [sbull] Cash management services; \45\
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    \45\ The term ``cash management services'' refers generally to 
the payment and collection services that are provided to customers 
to speed collection of receivables, control payments and efficiently 
manage deposit balances. Cash management services may include one or 
more of the traditional bank products listed separately above, such 
as deposit, payment and lockbox services.
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    [sbull] Services provided as trustee or guardian, or as executor or 
administrator of an estate;
    [sbull] Discretionary asset management services provided as 
fiduciary; \46\
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    \46\ A bank has discretionary authority over an account for 
these purposes if the bank, acting in a fiduciary capacity, has sole 
or shared authority (whether or not that authority is exercised) to 
determine what assets to purchase or sell on behalf of the account. 
See 12 CFR 9.2(i).
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    [sbull] Custody services (including securities lending services); 
and
    [sbull] Paying agent, transfer agent and registrar services.
    Thus, for example, the traditional bank product exceptions permit a 
bank to condition the availability or price of a particular loan on a 
requirement that the customer maintain a specified amount of deposits 
with the bank or its affiliates. Similarly, a bank may inform a 
customer that it will lend (or continue lending) to the customer only 
if the customer obtains cash management services from the bank or its 
affiliates. In both cases, the bank's actions are permissible because 
the tied products (deposits and cash management services) are 
traditional bank products.
    A bank, however, may not require a customer seeking an auto loan 
from the bank to purchase automobile insurance from the bank or from an 
insurance agency affiliate of the bank. Although the desired product 
(an auto loan) in this case is a traditional bank product, the tied 
product (automobile insurance) is not and, accordingly, the traditional 
bank product exceptions are not available for this transaction.
    2. Mixed-product arrangements.
    As discussed above, section 106 does not prohibit a bank from 
conditioning the grant of a loan to a customer on a requirement that 
the customer also obtain one or more traditional bank products, or a 
specified amount of traditional bank products, from the bank or its 
affiliates. In some cases, however, a bank may wish to provide a 
customer the freedom to choose whether to satisfy a condition imposed 
by the bank through the purchase of one or more traditional bank 
products or other ``non-traditional'' products (a ``mixed-product 
arrangement'').\47\ Allowing a bank to offer the customer the option of 
satisfying a condition by purchasing either traditional bank products 
or non-traditional products can provide benefits to the customer (by 
increasing the choices available to the customer) without requiring the 
customer to purchase any non-traditional product from the bank or an 
affiliate in violation of section 106.\48\
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    \47\ As used in this discussion, a mixed-product arrangement 
involves a choice among traditional bank products and non-
traditional products. The term does not apply to arrangements that 
involve only traditional bank products (which, as discussed in Part 
IV.A.1., are permissible under section 106) or arrangements that 
involve only non-traditional products (which, as discussed 
throughout this statement, may be prohibited by section 106).
    \48\ The Board previously has noted that the addition of non-
traditional products to a menu of traditional bank products offered 
a customer may, in some circumstances, increase customer choice in a 
manner consistent with the purposes and intent of section 106. See 
60 FR 20186, 20187-88, April 25, 1995. Indeed, this rationale formed 
the basis of the safe harbor that the Board adopted in 1995, as an 
exception to section 106, for certain types of combined-balance 
discount programs. Id. This safe harbor is discussed further in Part 
IV.D.

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[[Page 52031]]

    Accordingly, where a bank offers a customer a mixed-product 
arrangement, further analysis may be necessary to determine whether the 
offer constitutes a tying arrangement prohibited by section 106. If the 
customer that is offered the mixed-product arrangement has a meaningful 
option to satisfy the bank's condition solely through the purchase of 
the traditional bank products included in the arrangement, then the 
bank's offer would not, in fact, require the customer to purchase any 
non-traditional product from the bank or its affiliates in violation of 
section 106.\49\ In these circumstances, the customer has been provided 
a meaningful choice in determining whether to satisfy the bank's 
condition through the purchase of traditional bank products or non-
traditional products, and the bank's inclusion of non-traditional 
products within the range of tied products may be viewed as giving the 
customer additional flexibility in determining how it may choose to 
satisfy a condition that the bank is permitted by law to impose.
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    \49\ Cf. Tic-X-Press, Inc. v. Omni Promotions Co., 815 F.2d 
1407, 1416-17 (11th Cir. 1987) (a tying arrangement does not exist 
under the Sherman Act if the buyer had ``meaningful freedom of 
choice'' in deciding whether or not to purchase allegedly tied 
product from the seller); Stephen Jay Photography, Ltd. v. Olan 
Mills, Inc., 903 F.2d 988, 991 (4th Cir. 1990) (tying arrangement 
does not exist if customer had the option to purchase, or not 
purchase, the allegedly tied product).
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    If, on the other hand, the customer does not have a meaningful 
option to satisfy the bank's condition solely through the purchase of 
the traditional bank products included in the arrangement, then the 
arrangement violates section 106 because the arrangement effectively 
requires the customer to purchase one or more non-traditional products 
in order to obtain the customer's desired product or a discount on the 
desired product. A mixed-product arrangement also would violate section 
106 if the facts indicate that the bank did not provide the customer 
the freedom to choose to satisfy the bank's condition solely through 
the purchase of one or more of the traditional bank products included 
in the mixed-product arrangement.\50\
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    \50\ Thus, a bank would violate section 106 if it ostensibly 
offered a customer a mixed-product arrangement, but informed the 
customer that the customer could satisfy the bank's condition only 
by purchasing one or more of the non-traditional products included 
in the arrangement.
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    To illustrate a mixed-product arrangement, assume Company, a large 
manufacturing concern with an investment-grade credit rating, has a 
backup credit facility with Bank that will shortly come up for renewal. 
Assume also that Bank and its affiliates periodically review the 
overall profitability of their combined business relationships with 
their large corporate customers to determine whether the profitability 
of the customers' aggregate business relationships with Bank and its 
affiliates meets the internal profitability threshold (the ``hurdle 
rate'') established by Bank and its affiliates for that customer or 
type of customer. In accordance with this policy, Bank conducts a 
review of the overall profitability of Company's relationships with 
Bank and its affiliates and determines that the profitability of 
Company's existing relationships with Bank and its affiliates (i.e., 
the credit facility with Bank) does not meet the hurdle rate.
    In light of this review, Bank informs Company that Bank will not 
renew Company's credit facility unless Company commits to provide Bank 
or its affiliates sufficient additional business to allow Company's 
overall relationships with Bank and its affiliates to meet the hurdle 
rate. Bank does not tie renewal of the credit to the purchase by 
Company of any specific product or package of products from Bank or its 
affiliates. Rather, Bank informs Company that Company is free to choose 
from among all of the products offered by Bank and its affiliates in 
determining how Company may seek to meet the hurdle rate. Bank and its 
affiliates offer a wide variety of products, including deposits, trust 
services, cash management services and several other traditional bank 
products as well as bond underwriting services and several other non-
traditional products.
    Bank's actions would be permissible under section 106 if, for 
example, Company could reasonably obtain sufficient cash management 
services from Bank to permit Company to meet the hurdle rate. In such 
circumstances, Company would have a meaningful option to satisfy the 
hurdle rate solely through the purchase of one or more of the 
traditional bank products that are offered by Bank and its affiliates 
(cash management services in this example),\51\ and Bank's actions 
would not effectively require Company to purchase any non-traditional 
product in order to obtain renewal of the credit facility. This is true 
regardless of the product(s), if any, that Company ultimately chooses 
to obtain from Bank or its affiliates.
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    \51\ Company would have a meaningful option even though Company 
had a long-standing cash management arrangement with another 
financial institution so long as Company may legally transfer its 
cash management business to Bank and Bank is able to satisfy 
Company's cash management needs.
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    On the other hand, Bank's actions would violate section 106 if, for 
example, Company could satisfy the hurdle rate only by obtaining 
insurance, securities underwriting or strategic advisory services from 
Bank or an affiliate of Bank. In such circumstances, Company would not 
have a meaningful option to satisfy the hurdle rate solely through the 
purchase of one or more of the traditional bank products that are 
offered by Bank and its affiliates.
    As the foregoing illustrates, the determination of whether a mixed-
product arrangement comports with section 106 often will depend on the 
nature and characteristics of the arrangement itself and the customers 
to whom the arrangement is offered. Part VII of this statement 
discusses the types of policies, procedures and systems, including 
internal audit and recordkeeping systems, that should help banks 
offering mixed-product arrangements ensure that these arrangements are 
structured and offered in a manner consistent with section 106. The 
Board will review these policies, procedures and systems during the 
supervisory process as part of its examination and review of bank anti-
tying policies, procedures and systems.
B. Reciprocity Exceptions
    The reciprocity restrictions of section 106 generally prohibit a 
bank from conditioning the availability or price of a product (the 
desired product) on a requirement that the customer provide another 
product (the tied product) to the bank or an affiliate.\52\ Section 
106, however, contains an exception for situations where the tied 
product is to be provided to the bank and is ``related to and usually 
provided in connection with a loan, discount, deposit, or trust 
service'' (a ``usually connected product'').\53\ The Board has extended 
this exception by regulation to include situations where a bank 
requires the customer to provide a usually connected product to an 
affiliate of the bank, rather than to the bank itself.\54\ Taken 
together, these exceptions allow a bank to restrict the availability or 
vary the price of any bank product on the condition that the customer 
provide a usually connected product to the bank or an affiliate of the 
bank.
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    \52\ 12 U.S.C. 1972(1)(C) and (D).
    \53\ Id. at 1972(1)(C).
    \54\ See 12 CFR 225.7(b)(1)(ii).
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    Both the statutory and regulatory reciprocity exceptions are 
intended to ensure that section 106 does not restrict appropriate 
traditional banking

[[Page 52032]]

practices. Thus, for example, the exceptions permit a bank to condition 
the availability of secured credit on a requirement that the customer 
obtain insurance, for the benefit of the bank, that protects the value 
of the bank's security interest in the collateral securing the 
loan.\55\ Similarly, the exceptions permit a bank to take a wide 
variety of steps to protect the bank's financial interest in its credit 
relationships, such as, for example, requiring the affiliated parties 
of a troubled borrower to pay down their loans with the bank prior to 
renewing or advancing additional credit to the troubled borrower or 
requiring the owners of a corporate borrower to provide a personal 
guarantee of the corporation's debt to the bank.
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    \55\ The bank, however, may not require that the customer obtain 
the insurance from the bank or an affiliate of the bank.
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    Facts that may be relevant in determining whether a bank's demand 
that a customer provide an additional product is usual and appropriate 
and, thus, permissible under the exceptions include the relationship 
between the tied product and the desired product; whether the practice 
protects the value of the bank's credit or other exposures to the 
customer and associated parties; whether the practice is usual in the 
banking industry in connection with the type of product involved; and 
whether the condition was imposed by the bank principally to reduce 
competition or allow it to compete unfairly in the market for the tied 
product. The Board notes, however, that a reciprocity arrangement 
involving a loan or other product does not violate section 106 simply 
because the arrangement is not frequently imposed in banking 
transactions. Contractual agreements between banks and their customers, 
and loan agreements in particular, often are tailored to account for 
the characteristics of the individual customer and the specific 
transaction at issue. Accordingly, even though a particular reciprocal 
arrangement is uncommon, it still may reflect an appropriate banking 
practice in light of the facts and circumstances surrounding the 
transaction.\56\
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    \56\ For example, as one court has noted, debtors in ``serious 
financial straits, working with their creditors, [often] enter into 
numerous types of transactions that protect the creditors' 
investments while permitting the debtors' businesses to continue. 
The complexity of the transactions and special needs of the parties 
involved determine the type of arrangement that will be made to 
secure the joint aims of the debtor and creditor. Due to the 
complicated circumstances of many bailout cases, the specific 
banking transactions utilized may appear uncommon, yet, in the 
milieu of bailouts, they constitute appropriate banking practices. 
As such, they do not violate [section 106].'' See Continental Bank 
of Pennsylvania v. Barclay Riding Academy, Inc., 93 N.J. 153, 459 
A.2d 1163, cert. denied 464 U.S. 994 (1983).
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C. Exclusive Dealing Exception
    The statute's exclusive dealing restriction generally prohibits a 
bank from conditioning the availability or price of a bank product (the 
desired product) on a requirement that the customer not obtain another 
product (the tied product) from a competitor of the bank or a 
competitor of an affiliate of the bank.\57\ This restriction, for 
example, prohibits a bank that has a securities affiliate engaged in 
bond underwriting activities from threatening a corporate customer that 
the bank will terminate the bank's credit relationships with the 
customer if the customer uses the bond underwriting services of a 
competitor of the bank's securities affiliate.
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    \57\ 12 U.S.C. 1972(1)(E).
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    Section 106 contains an exception to its exclusive dealing 
restriction for situations where the condition was reasonably imposed 
by the bank in a credit transaction to ensure the soundness of the 
credit.\58\ This exception, like the statutory reciprocity exception, 
was intended to preserve the ability of banks to take appropriate steps 
to protect their credit extensions to customers.
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    \58\ Id.
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    This exception, for example, permits a bank, when consistent with 
appropriate banking standards, to condition the availability of a loan 
to a customer on the requirement that the customer not borrow from 
other sources (or pledge any collateral securing the loan to other 
entities) during the term of the loan.\59\ Similarly, this exception 
would permit a bank to condition the availability of floating-rate 
credit on a requirement that the prospective borrower hedge its 
floating-rate exposure by purchasing a fixed-to-floating interest rate 
swap, and limiting the permitted swap counterparties to those with a 
certain minimum credit rating. Although this condition may prevent the 
borrower from obtaining the swap from some less creditworthy 
competitors of the bank, the condition would appear to be reasonably 
designed to enhance the collectibility of the credit.
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    \59\ See 116 Cong. Rec. S15708 (daily ed. Sep. 16, 1970) 
(Statement of Sen. Bennett).
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D. Regulatory Safe Harbors
    1. Combined-balance discount safe harbor.
    The Board has granted a regulatory safe harbor for combined-balance 
discount packages, provided that they are structured in a way that does 
not, as a practical matter, obligate customers to purchase non-
traditional products in order to obtain the discount.\60\ This safe 
harbor allows a bank to vary the consideration for a product or package 
of products based on a customer's maintaining a combined minimum 
balance in certain products specified by the bank if three conditions 
are met: the bank offers deposits; all deposits are eligible to be 
counted toward the minimum balance; and deposits count at least as much 
as nondeposit products toward the minimum balance.\61\ Although the 
products included in the combined-balance discount program must be 
specified by the bank, the products may be offered by the bank or by an 
affiliate of the bank.
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    \60\ 12 CFR 225.7(b)(2).
    \61\ The Board recently issued an interpretive letter clarifying 
that any financial product, including insurance products, may be 
included in a combined-balance discount program and explaining the 
permissible methods for weighting insurance products within a 
combined-balance discount program. See Letter dated May 16, 2001, 
from J. Virgil Mattingly, Jr., General Counsel of the Board, to Carl 
Howard. The Board also recently issued a letter indicating that, for 
purposes of applying the regulatory safe harbor for combined-balance 
discount programs, the term ``customer'' may include separate 
individuals who are all members of the same immediate family (as 
defined in 12 CFR 225.41(b)(3)) and who all reside at the same 
address. See Letter dated November 26, 2002, from J. Virgil 
Mattingly, Jr., General Counsel of the Board, to Oliver I. Ireland.
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    2. Foreign transaction safe harbor.
    The Board also has granted a regulatory safe harbor for bank 
transactions with foreign persons.\62\ The foreign transaction safe 
harbor provides that the anti-tying prohibitions of section 106 do not 
apply to transactions between a bank and a customer if: (i) The 
customer is a company that is incorporated, chartered, or otherwise 
organized outside the United States and has its principal place of 
business outside the United States (a ``foreign company''); or (ii) the 
customer is an individual who is a citizen of a country other than the 
United States and is not resident in the United States.
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    \62\ 12 CFR 225.7(b)(3).
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    The foreign transaction safe harbor would generally be available 
for a loan transaction entered into by a bank with a foreign company 
even if the loan is partially guaranteed by a U.S. incorporated 
affiliate of the foreign company, or the foreign company directs the 
bank to disburse a portion of the loan proceeds to a U.S. incorporated 
affiliate of the foreign company that is not a party to the loan 
agreement. Such a loan transaction with a foreign company, however, 
would not qualify for the foreign transaction safe harbor if

[[Page 52033]]

the facts and circumstances surrounding the transaction indicate that 
the borrower, in substance, was the U.S. incorporated affiliate and not 
the foreign company. The safe harbor also would not protect tying 
arrangements where the customer itself is a U.S. incorporated 
subsidiary of a foreign company.
    3. Transactions outside a ``safe harbor''.
    The combined-balance discount and foreign transaction provisions 
discussed above are regulatory safe harbors. Accordingly, some 
combined-balance discount programs that are outside the regulatory safe 
harbor still may not be covered by section 106 because the arrangement 
does not satisfy the essential elements of a prohibited tying 
arrangement under section 106 or qualifies for another statutory or 
regulatory exception from section 106. In addition, some tying 
arrangements that are outside the foreign transaction safe harbor still 
may not be covered by section 106 because the transactions involved are 
so foreign in nature that they do not raise the competitive concerns 
that section 106 was designed to address.

V. What Is a ``Bank'' for Purposes of Section 106?

    Section 106 applies, by its terms, to any depository institution 
that meets the definition of ``bank'' in section 2(c) of the Bank 
Holding Company Act (BHC Act), including a grandfathered ``nonbank 
bank'' that is controlled by a company under section 4(f) of the BHC 
Act.\63\ The statute also applies to any depository institution that is 
described in section 2(c)(2)(D), (F), (G), (H), (I) or (J) of the BHC 
Act and, thus, excluded from the definition of ``bank'' under the BHC 
Act.\64\ As a result, virtually every type of institution that is 
chartered as a bank, including every ``insured bank'' (as defined in 
section 3 of the Federal Deposit Insurance Act), is subject to section 
106.\65\ This is true whether or not the covered depository institution 
is owned or controlled by a bank holding company registered under the 
BHC Act.
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    \63\ See 12 U.S.C. 1971 and 1841(c)(1).
    \64\ 12 U.S.C. 1843(f)(9) and (h)(1). These institutions include 
limited-purpose trust companies, credit card banks, Edge Act and 
Agreement corporations, and industrial loan companies and similar 
institutions.
    \65\ See 12 U.S.C. 1813.
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    Section 106 also applies to any U.S. branch, agency, or commercial 
lending company of a foreign bank (as those terms are defined in 
section 8 of the International Banking Act).\66\ In addition, although 
affiliates of a bank generally are not subject to section 106, the BHC 
Act specifically provides that an affiliate of an institution 
controlled pursuant to section 4(f) or described in section 2(c)(2)(D), 
(F), (G), (H), (I), or (J) of the BHC Act is subject to the anti-tying 
prohibitions of section 106 in connection with any transaction 
involving the products of both the affiliate and the institution as if 
the affiliate were a bank and the institution were an affiliate.\67\
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    \66\ See 12 U.S.C. 3106.
    \67\ See 12 U.S.C. 1843(f)(9)(B) and (h)(2).
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    Section 106 also applies to most, but not all, subsidiaries of 
banks. In particular, section 106 applies to all subsidiaries of a 
bank--other than a financial subsidiary--in exactly the same manner as 
the statute applies to the bank itself. A financial subsidiary of a 
national bank or a state member bank, however, is treated as an 
affiliate of the bank, and not as a subsidiary of the bank, for 
purposes of the statute.\68\
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    \68\ See 12 U.S.C. 1971; 12 CFR 208.73(e). Tying arrangements 
imposed by a financial subsidiary of a bank, like tying arrangements 
imposed by any other affiliate of a bank, remain subject to the 
general antitrust laws.
---------------------------------------------------------------------------

    This statement uses the term ``bank'' to refer to all entities that 
are subject to section 106. As noted above, savings associations are 
subject to anti-tying restrictions that are virtually identical to 
those applicable to banks under section 106.\69\
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    \69\ See 12 U.S.C. 1464(q).
---------------------------------------------------------------------------

VI. What Is an ``Affiliate'' for Purposes of Section 106?

    Section 106 prohibits a bank from requiring that a customer obtain 
any additional product from, or provide any additional product to, ``a 
bank holding company of such bank, or * * * any other subsidiary of 
such bank holding company.'' \70\ For purposes of these restrictions, 
any company that controls a bank that is subject to section 106 is 
treated as a bank holding company (even if the company is not a bank 
holding company under the BHC Act), and any subsidiary of such a 
company is treated as a subsidiary of a bank holding company.\71\ In 
addition, for purposes of section 106, any natural person that controls 
a bank that is subject to section 106 is treated as a ``bank holding 
company'' of the bank, and any other company controlled by such a 
natural person is treated as a subsidiary of the ``bank holding 
company'' of such bank.\72\
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    \70\ See 12 U.S.C. 1972(1)(B) and (D). The exclusive dealing 
prohibition in section 106(1)(E) similarly prohibits a bank from 
requiring that a customer not obtain an additional product from a 
competitor of the ``bank holding company of such bank, or any 
subsidiary of such bank holding company.'' Id. at 1972(1)(E).
    \71\ See 12 U.S.C. 1843(f)(9) and (h)(1). A company that 
controls a bank (as defined under section 2(c) of the BHC Act) and 
that is not considered a bank holding company by reason of section 
2(a)(5) of the BHC Act, however, is not considered a bank holding 
company for purposes of section 106 and, thus, is not considered an 
affiliate of the bank for purposes of this statement.
    \72\ See 12 U.S.C. 1971.
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    To reflect the scope of section 106, the term ``affiliate'' as used 
in this statement with respect to a bank means any company or natural 
person that controls the bank, and any company that is controlled by 
such company or person (other than the bank itself).
    As noted previously, section 106 generally does not apply to tying 
arrangements imposed by an affiliate of a bank. However, a bank may not 
participate in a transaction in which an affiliate has nominally 
imposed a condition on a customer that the bank is prohibited from 
directly imposing under section 106 if the affiliate was acting on 
behalf of, as agent for, or in conjunction with the bank. For example, 
a bank should not have a pre-arrangement or understanding with an 
affiliate to fund a syndicated loan for which the affiliate acts as 
syndicate manager if the affiliate has conditioned the availability (or 
price) of its syndication services on a requirement that the customer 
obtain securities underwriting services from the affiliate. Similarly, 
if an affiliate of a bank has conditioned the availability (or price) 
of a bridge loan on a requirement that the customer hire the bank's 
securities affiliate as an underwriter for the company's follow-on bond 
offering, the bank should not have an arrangement or understanding with 
the affiliate at the time the bridge loan is made to purchase the loan 
(or a participation in the loan) from the affiliate.

VII. What Internal Controls Should Banks Have to Ensure Compliance With 
the Anti-Tying Prohibitions of Section 106?

    The board of directors and senior management of a bank are 
responsible for ensuring that the bank establishes and maintains an 
effective system of internal controls that, among other things, 
provides reasonable assurances that the bank complies with applicable 
laws and regulations, including the anti-tying prohibitions of section 
106. An effective system of internal controls and a management 
environment that emphasizes compliance not only helps an organization 
operate in an efficient and safe and sound manner, but also helps 
mitigate the legal and reputational risks that may arise from actual or 
perceived violations of the anti-tying prohibitions of section 106.

[[Page 52034]]

A. Anti-Tying Policies, Procedures and Systems
    Banks should have policies, procedures and systems in place that 
are reasonably designed to ensure that the bank complies with the anti-
tying prohibitions of section 106. The types of anti-tying policies, 
procedures and systems appropriate for a particular bank depends on the 
size of the bank, and the nature, scope and complexity of the bank's 
activities (including activities conducted in conjunction with 
affiliates). Banks should review and update their anti-tying policies, 
procedures and systems periodically to ensure that these policies, 
procedures and systems reflect any changes in the nature, scope or 
complexity of the bank's activities or applicable law, regulations or 
supervisory guidance.
    The anti-tying policies and procedures of banks should describe the 
scope of section 106 and the types of tying arrangements prohibited by 
the statute. Banks should ensure that the anti-tying prohibitions of 
section 106 are appropriately reflected or incorporated in the 
institution's corporate policies and procedures, including the 
institution's policies and procedures concerning credit approval, new 
product approval and pricing, and marketing.
    Banks also should ensure that appropriate bank personnel receive 
education and training concerning the anti-tying prohibitions of 
section 106. The scope and frequency of the education and training 
provided an individual or department should be tailored to the nature 
and scope of the person's or department's functions at the bank, with 
greater focus and resources devoted to those positions or departments 
that present the greatest legal or reputational risk to the bank. 
Corporate relationship managers, syndicated lending personnel, persons 
with authority to approve credit extensions or establish pricing 
policies for the bank and other personnel that have direct contact with 
customers for purposes of marketing or selling the bank's products, for 
example, should receive comprehensive and regular anti-tying 
training.\73\
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    \73\ Banks also should review their employee compensation 
programs in order to ensure that such programs do not provide 
employees inappropriate incentives to tie products in a manner 
prohibited by section 106.
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    In addition, the policies and procedures of a bank should--
    [sbull] Permit personnel with questions concerning section 106 or 
its application to a particular transaction to discuss the issue with 
an appropriate representative of the institution's compliance or legal 
department;
    [sbull] Include procedures for the receipt, handling and resolution 
of customer complaints alleging a violation of section 106 by the bank; 
and
    [sbull] Prohibit the bank or any employee of the bank from taking 
adverse action against a customer because the customer submitted a 
complaint to the bank or a Federal banking agency alleging a violation 
of section 106 by the bank.
    A bank's compliance function should take a lead role in monitoring 
the bank's compliance with section 106. Appropriate compliance 
activities may include reviewing periodically the bank's policies and 
procedures to ensure they are updated as necessary to reflect changes 
in the bank's business or applicable laws, regulations or supervisory 
guidance and conducting training sessions for appropriate bank 
personnel. The compliance function also should review the bank's 
marketing materials and individual transactions to test the bank's 
compliance with the anti-tying restrictions of section 106. In 
performing such tests, compliance personnel typically should review the 
documentation associated with the transaction and discuss the 
transaction with the relevant bank personnel involved in the 
transaction.
    Internal audit also plays an important role in ensuring a bank's 
compliance with the anti-tying restrictions. A bank's internal audit 
function should periodically review and test the institution's anti-
tying policies, procedures and systems in order to confirm that they 
are working effectively and in the manner intended. The appropriate 
scope and frequency of these reviews and tests will depend on the size, 
nature and complexity of the bank's business operations and the 
effectiveness of the bank's compliance function. Thus, for example, if 
the bank's compliance function properly conducts transaction testing on 
a regular basis, the bank's internal audit reviews may focus on 
reviewing the adequacy of the bank's policies and procedures and 
validating the compliance function's work. Banks should ensure that the 
compliance and internal audit personnel responsible for monitoring and 
assessing the institution's compliance with section 106 are well 
trained with respect to the anti-tying rules.
B. Internal Control and Recordkeeping Requirements for Banks Offering 
Mixed-Product Arrangements Outside a Regulatory Safe Harbor
    As discussed above, a bank may offer a mixed-product arrangement 
under which the bank provides the customer the option of satisfying a 
condition imposed by the bank through the purchase of traditional bank 
products or non-traditional products where the customer has a 
meaningful option to satisfy the condition solely through the purchase 
of traditional bank products.\74\ Because mixed-product arrangements 
present special compliance issues under section 106, the anti-tying 
policies, procedures and systems of a bank offering a mixed-product 
arrangement play a particularly important role in demonstrating and 
ensuring that the bank's actions with respect to these arrangements are 
consistent with section 106. Accordingly, in conducting anti-tying 
compliance reviews at banking organizations, the Board expects to 
carefully review the anti-tying policies, procedures and systems used 
by banks that offer mixed-product arrangements.
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    \74\ See Part IV.A.2.
---------------------------------------------------------------------------

    A bank's policies, procedures and documentation should reflect how 
the bank will and does establish a good faith belief that a customer 
offered a mixed-product arrangement would be able to satisfy the 
condition associated with the arrangement solely through the purchase 
of traditional bank products. For example, the bank's policies, 
procedures and documentation generally should address--
    [sbull] The factors and types of information that the bank will 
review in forming a good faith belief that any customer offered a 
mixed-product arrangement has a meaningful option to satisfy the bank s 
condition solely through the purchase of one or more of the traditional 
bank products included in the arrangement. Information relevant to this 
determination may include:
    [sbull] The range and types of traditional bank products that are 
offered by the bank and its affiliates and included in the mixed-
product arrangement;
    [sbull] The manner in which traditional bank products and non-
traditional products are treated for purposes of determining whether a 
customer has or would meet the condition associated with the 
arrangement; \75\
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    \75\ In mixed-product arrangements, banks may not weight, 
discourage the use of, or otherwise treat traditional bank products 
in a manner that is designed to deprive customers of a meaningful 
choice.
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    [sbull] The types and amounts of traditional bank products 
typically required or obtained by companies that are comparable in 
size, credit quality, and nature, scope and complexity of business 
operations to the customer; and

[[Page 52035]]

    [sbull] Information provided by the customer concerning the types 
and amounts of traditional bank products needed or desired by the 
customer and the customer s ability to obtain those products from the 
bank or its affiliates; and
    [sbull] The bank personnel authorized to make the analysis 
described above for individual customers or classes of customers and 
the training and guidelines provided these personnel; and
    [sbull] The internal processes and controls, including approval and 
documentation requirements, the bank uses to ensure that the analysis 
described above is (i) performed by the bank for a customer before the 
customer is offered a mixed-product arrangement and (ii) adequately 
reflected in the records of the bank.
    The bank's policies and procedures also should ensure that any 
material information relied on by the bank in analyzing the types and 
amounts of traditional bank products likely required by a customer is 
current and reliable, and that the assessment of a customer's ability 
to satisfy the condition associated with a mixed-product arrangement 
solely through the purchase of traditional bank products is made prior 
to, and reasonably current with, the time the arrangement is offered to 
the customer.
    The types and amount of information and level of analysis necessary 
for a bank to establish a good faith belief that a customer has a 
meaningful choice under a mixed-product arrangement may vary depending 
on the nature and characteristics of the arrangement and the types of 
customer(s) to which it is offered. For example, a less detailed and 
granular review likely would be required for a bank to establish a good 
faith belief that a large, complex company has a meaningful option of 
satisfying a condition solely through the purchase of traditional bank 
products than a smaller company with less complex business operations. 
In addition, a less detailed review likely would be necessary for a 
bank to develop a good faith estimate of the need for traditional bank 
products of an existing customer with a long history with the bank than 
of a potential customer or a customer with only a brief relationship 
with the bank.
C. Ability of Banks to Offer Mixed-Product Arrangements to Individuals
    Bank products directed to individuals typically are standardized. 
Although such standardization may allow the product to be offered 
economically to large numbers of individual customers, it also means 
that the terms of the product typically are not modified to the same 
extent as with corporate customers to reflect the specific needs and 
resources of the customer.
    Furthermore, because individuals typically have less bargaining 
power and may be less financially sophisticated, individuals may be 
more susceptible to subtle pressure by a bank that encourages the 
customer to purchase a non-traditional product from the bank or an 
affiliate. The potential for such subtle pressure to be applied in a 
manner that is both effective and difficult to uncover is particularly 
strong in mixed-product arrangements because these arrangements include 
both traditional bank products and non-traditional products and 
individuals often believe that they do not have (and, in fact, may not 
have) the ability to negotiate with a bank. These facts make it 
difficult for a bank to establish a good faith belief that a mixed-
product arrangement provides an individual a meaningful option to 
satisfy the condition associated with the arrangement solely through 
the purchase of traditional bank products without a detailed and, in 
many cases, uneconomical analysis of the financial needs and 
capabilities of each individual offered the arrangement.
    The Board recognizes that section 106 limits the ability of banking 
organizations to provide individual consumers with discounts on 
packages of bundled products and, thus, pass along the cost savings 
that may arise from bundled offerings in ways that are both pro-
consumer and not anti-competitive. It was in part to allow banks some 
flexibility to provide individual consumers with the benefits of 
discounts on bundled offerings that the Board in 1995 exercised its 
exemptive authority to adopt a safe-harbor for combined-balance 
discount programs, which are a type of mixed-product arrangement that 
typically are marketed to individuals.\76\ Moreover, the Board notes 
that section 106 does not impede the ability of a bank to provide 
individual consumers with discounts on packages of bundled traditional 
bank products and does not restrict the ability of a nonbank affiliate 
of a bank to offer mixed-product arrangements to individual consumers.
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    \76\ This exception, which is discussed in Part IV.D, allows 
banks to offer certain combined-balance discount programs to 
individuals without making a specific determination that the 
particular customer has a meaningful option of qualifying for the 
discounts within the program solely through the use of the deposit 
products (a traditional bank product) included in the program. See 
12 CFR 225.7(b)(2).

    By order of the Board of Governors of the Federal Reserve 
System, August 25, 2003.
Jennifer J. Johnson,
Secretary of the Board.
[FR Doc. 03-22091 Filed 8-28-03; 8:45 am]
BILLING CODE 6210-02-P