[Federal Register Volume 60, Number 114 (Wednesday, June 14, 1995)]
[Notices]
[Pages 31309-31310]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-14499]
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FEDERAL RESERVE SYSTEM
Bank South Corporation, Notice to engage de novo in certain
nonbanking activities
Bank South Corporation, Atlanta, Georgia (Applicant), has filed
notice pursuant to Sec. 4(c)(8) of the Bank Holding Company Act (12
U.S.C. 1843(c)(8)) (BHC Act) and Sec. 225.21 of the Board's Regulation
Y (12 CFR 225.21(a)(2)), to engage de novo through Bank South
Securities Corporation, Atlanta, Georgia (Company), a subsidiary of
Applicant, in underwriting, to a limited extent, certain ``private
ownership'' industrial development revenue bonds, which are issued for
the provision of the following governmental services: water facilities,
sewer facilities, solid waste disposal facilities, electric energy and
gas facilities, and local district heating or cooling facilities.
Applicant previously has received Board approval to engage through
Company in, among other things, underwriting and dealing in municipal
revenue bonds pursuant to the prudential limitations and other
conditions set forth in Citicorp, J.P. Morgan & Co. Incorporated, and
Bankers Trust New York Corporation, 73 Federal Reserve Bulletin 473
(1987) as modified by Order Approving Modifications to Section 20
Orders, 75 Federal Reserve Bulletin 751 (1989). Bank South Corporation,
79 Federal Reserve Bulletin 716 (1993) (``Bank South'').
Applicant also has requested limited relief from a condition in
Bank South to allow Company to underwrite certain unrated municipal
revenue bonds. Applicant has committed that Company will comply with
the limitations and conditions previously relied on by the Board
(Letter Interpreting Section 20 Orders, 81 Federal Reserve Bulletin 198
(1995)) except that Applicant proposes that any single issue of unrated
municipal revenue bonds underwritten by Company will not exceed $10
million.
Among the conditions to which Applicant is subject pursuant to Bank
South is that any industrial development bonds underwritten by Company
will be limited to ``public ownership'' industrial development bonds
(i.e., those tax exempt bonds where the issuer, or the governmental
unit on behalf of which the bonds are issued, is the sole owner, for
federal income tax purposes, of the financed facility). Applicant is
now seeking approval to engage through Company in underwriting
``private ownership'' industrial development revenue bonds issued for
the provision of the governmental services noted above, pursuant to the
same prudential limitations and other conditions that Applicant agreed
to in Bank South.
Section 4(c)(8) of the BHC Act provides that a bank holding company
may, with Board approval, engage in any activity which the Board, after
due notice and opportunity for hearing, has determined (by order or
regulation) to be so closely related to banking or managing or
controlling banks as to be a proper incident thereto. This statutory
test requires that two separate tests be met for an activity to be
permissible for a bank holding company. First, the Board must determine
that the activity is, as a general matter, closely related to banking.
Second, the Board must find in a particular case that the performance
of the activity by the applicant bank holding company may reasonably be
expected to produce public benefits that outweigh possible adverse
effects.
A particular activity may be found to meet the ``closely related to
banking'' test if it is demonstrated that banks have generally provided
the proposed activity; that banks generally provide services that are
operationally or functionally similar to the proposed activity so as to
equip them particularly well to provide the proposed activity; or that
banks generally provide services that are so integrally related to the
proposed activity as to require their provision in a specialized form.
National Courier Ass'n v. Board of Governors, 516 F.2d 1229, 1237 (D.C.
Cir. 1975). In addition, the Board may consider any other basis that
may demonstrate that the activity has a reasonable or close
relationship to banking or managing or controlling banks. Board
Statement Regarding Regulation Y, 49 Federal Register 806 (1984).
Applicant maintains that the Board previously has determined that
underwriting private ownership industrial development bonds to a
limited extent is closely related to banking. J.P. Morgan & Co.
Incorporated, et al., 75 Federal Reserve Bulletin 192 (1989) (1989
Section 20 Order), as modified by Order dated September 21, 1989, 75
Federal Reserve Bulletin 751 (1989) (Modification Order). Applicant has
stated, however that it will conduct the activity using the methods and
procedures, and subject to the prudential limitations to which it
agreed in Bank South. This includes the Board's 10 percent revenue
limitation on such activities, and for this reason, Applicant contends
that approval of the application would not be barred by section 20 of
the Glass-Steagall Act (12 U.S.C. 377), which prohibits the affiliation
of a state member bank with any company principally engaged in the
underwriting, public sale, or distribution of securities.
In order to satisfy the proper incident to banking test, section
4(c)(8) of the BHC Act requires the Board to find that the performance
of the activity by Company can reasonably be expected to produce
benefits to the public, such as greater convenience, increased
competition, or gains in efficiency that outweigh possible adverse
effects, such as undue concentration of resources, decreased or unfair
competition, conflicts of interest, or unsound banking practices.
In this regard, Applicant believes that ``private ownership''
industrial development bonds issued for projects that provide the
governmental services listed above are substantially the same from a
risk analysis standpoint as ``public ownership'' industrial development
bonds. Applicant notes that the revenue streams that pay debt service
in the case of both types of bonds are derived from fees collected for
providing services traditionally provided by governmental entities or
through a contract between a private company and a governmental entity.
Accordingly, Applicant believes that the prudential limitations and
other conditions to which it is subject pursuant to Bank South are
adequate to mitigate any potential adverse effects that may arise from
the proposed activity. Applicant also believes that approval of this
proposal will promote competition and enable Company to provide a wider
range of services and added convenience to its customers.
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 notice and does not represent a
determination by the Board that the proposal meets, or is likely to
meet, the standards of the BHC Act.
Any comments or requests for hearing should be submitted in writing
and received by William W. Wiles, Secretary, Board of Governors of the
Federal Reserve System, Washington, D.C. 20551, not later than June 30,
1995. Any request for a hearing on this
[[Page 31310]]
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 notice may be inspected at the offices of the Board of
Governors or the Federal Reserve Bank of Atlanta.
Board of Governors of the Federal Reserve System, June 8, 1995.
Jennifer J. Johnson,
Deputy Secretary of the Board.
[FR Doc. 95-14499 Filed 6-13-95; 8:45 am]
BILLING CODE 6210-01-F
