[Federal Register Volume 59, Number 239 (Wednesday, December 14, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 93-30688]
[[Page Unknown]]
[Federal Register: December 14, 1994]
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FEDERAL RESERVE SYSTEM
State Street Boston Corporation, Boston, Massachusetts;
Application to Engage in Nonbanking Activities
State Street Boston Corporation, Boston, Massachusetts (Applicant),
has applied pursuant to section 4(c)(8) of the Bank Holding Company Act
(12 U.S.C. 1843(c)(8)) (BHC Act) and Sec. 225.23(a) of the Board's
Regulation Y (12 CFR 225.23(a)) to acquire IFTC Holdings, Inc., Kansas
City, Missouri (IFTC), and IFTC's wholly owned subsidiary, Investors
Fiduciary Trust Company, Kansas City, Missouri (Company), and thereby
engage in trust company activities pursuant to Sec. 225.25(b)(3) of
the Board's Regulation Y and in related nonbanking activities. These
activities will be conducted on a worldwide basis.
Company is currently exempt from the definition of bank by virtue
of an exception applicable only to it in section 2 of the BHC Act.
Company will lose this exemption upon its acquisition by Applicant.
Accordingly, Applicant proposes to maintain Company's nonbank status by
conforming Company's activities to the requirements of section
2(c)(2)(D) of the BHC Act (12 U.S.C. Sec. 1841(c)(2)(D)), which
excludes certain trust companies from the definition of bank. An
institution qualifies for this exception only if:
(1) All or substantially all of the deposits of such institution
are in trust funds and are received in a bona fide fiduciary capacity;
(2) No deposits of such institution that are FDIC insured are
offered or marketed by or through an affiliate;
(3)(A) The institution does not accept demand deposits or deposits
that the depositor may withdraw by check or similar means for payment
to third parties or others and
(B) does not make commercial loans; and
(4) The institution does not obtain payment related services or
exercise discount or borrowing privileges at any Federal Reserve Bank.
In particular, Company would provide five general types of services
to various customers, including the following types of entities
(although a single type of customer would not necessarily obtain more
than one of the five categories of services that Company proposes to
provide): mutual funds; insurance companies, banks and trust companies;
limited partnerships; broker dealers; money managers; private accounts;
general business corporations; private trusts; collective trusts; and
unit investment trusts. Applicant proposes to engage in these
activities throughout the United States. The five types of services
that Company would provide are described below.
(1) Trustee services. Applicant states that Company would provide
trustee services to various entities including retirement plans,
employee benefit plans, charitable remainder trusts, unit investment
trusts, and grantor trusts that are investment companies. In connection
with these trust services, Company would make advances for the payment
of distributions by unit investment trusts.
(2) Custodial services. Applicant states that custodial services
include security settlement and safekeeping, cash monitoring, lock box
services, wire transfer services, collateral agent services, and acting
as agent to administer third-party repurchase transactions. Company
would also maintain operational and clearing deposit accounts in
connection with these custody functions and in connection with the
National Securities Clearing Corporation settlements. In addition,
Company would advance funds to cover securities settlement and
disbursement.
(3) Investment accounting services for various entities, including
administrative services to closed-end investment companies and mutual
funds. Company's investment accounting services include providing
inventories and data on foreign and domestic securities owned,
including tax lot accounting, income accruals, corporate actions, and
market valuation. Performance of those services entails general ledger
accounting, compliance reporting, and daily valuation. Company also
would provide administrative and compliance services to mutual funds
listed in Appendix A to the Board's order in Mellon Bank Corporation,
79 Federal Reserve Bulletin 626 (1993)(Mellon).
(4) Transfer agency and shareholder services. Applicant states that
these services would include providing transfer agency and shareholder
servicing and systems on a full service or remote basis and acting as
dividend reinvestment and cash purchase plan agent. In connection with
the proposed transfer agency services, Company would maintain various
(purchase, redemption, dividend, commission, and paying agent) deposit
accounts and mutual fund draft writing privilege clearing accounts.
Company also advances funds from time to time to cover securities
settlements and disbursements.
(5) Paying, clearing, and settlement agent services. Applicant
states that Company would provide these services to mutual funds,
trusts, and corporate entities and that Company also would provide
processing services for a debit card (the Moneycard) which is issued in
connection with brokerage and mutual fund accounts. Company's services
in connection with the Moneycard include daily receipt of customer
account availability, transmission of that account information to a
third party processor of debit card transactions (which third party
authorizes and clears transactions initiated by using the Moneycard),
followed by transmission of transactions and authorizations to Company,
which then transmits the transactions to Company's clients for payment
from the customer's assets. Applicant intends to transfer its
activities with respect to the Moneycard to its wholly owned
subsidiary, State Street Bank and Trust Company. In connection with
these services, Company maintains related operational and clearing
deposit accounts.
Company also offers certain other deposit accounts such as money
market deposit accounts and certificates of deposit placed through
brokerage networks and sold to employees and employees of Company's
affiliates. Company also proposes to retain the following types of
securities:
(1) Mortgage-backed securities;
(2) Corporate debt securities;
(3) U.S. Government securities;
(4) U.S. municipal securities; and
(5) Trading securities (consisting solely of U.S. Government and
federal agency debt securities).
Closely Related to Banking Standard
Section 4(c)(8) of the BHC Act provides that a bank holding company
may, with Board approval, engage in any activity ``which the Board
after due notice and opportunity for hearing has determined (by order
or regulation) to be so closely related to banking or managing or
controlling banks as to be a proper incident thereto....'' In
determining whether a proposed activity is closely related to banking
for purposes of the BHC Act, the Board considers, inter alia, the
matters set forth in National Courier Association v. Board of Governors
of the Federal Reserve System, 516 F.2d 1229 (D.C. Cir. 1975). These
considerations are
(1) Whether banks generally have in fact provided the proposed
services,
(2) Whether banks generally provide services that are operationally
or functionally so similar to the proposed services as to equip them
particularly well to provide the proposed services, and
(3) Whether banks generally provide services that are so integrally
related to the proposed services as to require their provision in a
specialized form. See 516 F.2d at 1237. In addition, the Board may
consider any other basis that may demonstrate that the activity has a
reasonable or close relationship to banking or managing or controlling
banks. Board Statement Regarding Regulation Y, 49 FR 806 (1984).
Applicant maintains that the Board has previously determined that
the majority of the proposed activities are closely related to banking
within the meaning of the BHC Act. Specifically, Applicant maintains
that the Board has determined by regulation that the proposed trust and
custody services as well as the proposed payment, dividend, and
clearing agency services are closely related to banking. 12 C.F.R.
225.25(b)(3). Applicant maintains that national banks are authorized to
engage in the proposed investment accounting activities. OCC
Interpretive Letter No. 386 (January 19, 1987); OCC Interpretive Letter
No. 332 (March 8, 1985). In addition, Applicant maintains that the
Board has previously determined by order that the proposed
administrative services to mutual funds are closely related to banking.
See Mellon. In this regard, Applicant notes that the Board relied on a
commitment by Mellon that it would provide administrative services only
to investment companies 50 percent of whose board of directors are
disinterested individuals for purposes of the Investment Company Act of
1940 (15 U.S.C. Sec. 80a-1 et seq.)(1940 Act). See Mellon at 629.
Applicant proposes to provide such services to investment companies 40
percent of whose boards of directors are disinterested individuals.
Applicant maintains that its commitment reflects the requirements of
the 1940 Act.
Applicant also maintains that the proposed transfer and settlement
agency activities and shareholder services are closely related to
banking because banks are authorized to perform such services. OCC
Interpretive Letter No. 473 (January 13, 1989); OCC Interpretive Letter
No. 132 (December 9, 1987). Applicant also maintains that these agency
activities are similar to the types of agency activities specifically
mentioned in Sec. 225.25(b)(3) of Regulation Y (12 C.F.R.
225.25(b)(3)).
Applicant maintains that the Board has determined by order that
accepting savings, time, and demand deposit accounts is closely related
to banking. Chemical New York Corporation, 73 Federal Reserve Bulletin
609 (1987); U.S. Trust Corporation, 70 Federal Reserve Bulletin 371
(1984). These cases preceded the enactment of the Competitive Equality
in Banking Act of 1987, which closed the nonbank bank loophole in the
BHC Act. Applicant also maintains that the Board has determined that
Company's proposed investments in U.S. Government securities and
municipal securities are authorized by Sec. 225.25(b)(3) of Regulation
Y. In addition, Applicant maintains that investing in mortgage-backed
and corporate debt securities is closely related to banking because
national banks may invest in these securities. 12 U.S.C. Sec.
24(Seventh).
Proper Incident to Banking Standard
In order to approve the proposal, the Board also must determine
that the proposed activities to be conducted by Company ``can
reasonably be expected to produce benefits to the public, such as
greater convenience, increased competition, or gains in efficiency,
that outweigh possible adverse effects, such as undue concentration of
resources, decreased or unfair competition, conflicts of interests, or
unsound banking practices.'' 12 U.S.C. 1843(c)(8).
Applicant believes that the proposal will produce public benefits
that outweigh any potential adverse effects. In particular, Applicant
maintains that the proposal will enhance customer convenience and
efficiency. In addition, Applicant states that the proposed activities
will not result in adverse effects such as an undue concentration of
resources, decreased or unfair competition, conflicts of interests, or
unsound banking practices.
In publishing the proposal for comment, the Board does not take a
position on issues raised by the proposal. Notice of the proposal is
published solely in order to seek the views of interested persons on
the issues presented by the application, and does not represent a
determination by the Board that the proposal meets or is likely to meet
the standards of the BHC Act.
Any comments or requests for hearing should be submitted in writing
and received by William W. Wiles, Secretary, Board of Governors of the
Federal Reserve System, Washington, DC 20551, not later than January 4,
1995. Any request for a hearing on this application must, as required
by Sec. 262.3(e) of the Board's Rules of Procedure (12 CFR 262.3(e)),
be accompanied by a statement of the reasons why a written presentation
would not suffice in lieu of a hearing, identifying specifically any
questions of fact that are in dispute, summarizing the evidence that
would be presented at a hearing, and indicating how the party
commenting would be aggrieved by approval of the proposal.
This application may be inspected at the offices of the Board of
Governors or the Federal Reserve Bank of Boston.
Board of Governors of the Federal Reserve System, December 8,
1994.
William W. Wiles,
Secretary of the Board.
[FR Doc. 93-30688 Filed 12-13-93; 8:45 am]
BILLING CODE 6210-01-F
