[Federal Register Volume 59, Number 172 (Wednesday, September 7, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-21973]
[[Page Unknown]]
[Federal Register: September 7, 1994]
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FEDERAL RESERVE SYSTEM
First of America Bank Corporation, Kalamazoo, Michigan;
Application to Engage in Nonbanking Activities
First of America Bank Corporation, Kalamazoo, Michigan (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)(3) of the Board's
Regulation Y (12 CFR 225.23(a)(3)) to engage de novo through a wholly
owned subsidiary, First of America Securities, Inc., Kalamazoo,
Michigan (Company), in the following securities-related activities: (1)
underwriting and dealing in, to a limited extent, rated and unrated
debt securities, including only municipal revenue bonds (including
industrial development bonds), mortgage-related securities, consumer
receivable-related securities, commercial paper, and securities issued
by a trust or other vehicle secured by or representing interests in
such debt obligations (bank-ineligible securities); (2) acting as agent
for issuers in the private placement of all types of debt and equity
securities, including providing related advisory services; (3) buying
and selling securities on the order of investors as a ``riskless''
principal; (4) intermediating in the swaps markets by acting as an
originator and principal in interest rate and currency swap
transactions, and transactions in ``swap derivative products'' such as
caps, floors and collars, and options on swaps, caps, floors and
collars, (a) acting as broker and agent with respect to the foregoing
transactions and instruments, and (b) acting as adviser to
institutional customers regarding financing strategies involving
interest rate and currency swaps and derivative swap products; (5)
providing foreign exchange advisory and transactional services; and (6)
providing advice in connection with merger, acquisition, divestiture,
recapitalization and financing transactions, including feasibility
studies and structuring and arranging loan syndications, for financial
and nonfinancial institutions and high net worth individuals, and to
provide ancillary services or functions incidental to these activities;
valuations for financial and nonfinancial institutions and high net
worth individuals; fairness opinions in connection with merger,
acquisition and similar transactions for financial and nonfinancial
institutions and high net worth individuals and ancillary services or
functions incidental to the foregoing advisory activities (collectively
``financial advisory activities''). Company has previously received
Federal Reserve System approval to engage in full-service brokerage
activities, providing financial advice to state and local governments,
and underwriting and dealing in bank-eligible securities. Applicant
proposes to conduct these activities throughout the United States.
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 FR 806 (1984).
The Board has previously approved, by regulation, financial
advisory activities and providing foreign exchange transactional and
advisory services. See, 12 CFR 225.25(b)(4)(vi) and (17). Applicant has
stated that it will conduct these proposed activities subject to the
requirements and limitations of the Board's Regulation Y.
The Board also has previously approved, by order, underwriting and
dealing in, to a limited extent, bank-ineligible securities. See, e.g.,
Citicorp, et al., 73 Federal Reserve Bulletin 473 (1987) (1987 Section
20 Order), aff'd sub nom. Securities Industry Ass'n v. Board of
Governors of the Federal Reserve System, 839 F.2d 47 (2d Cir.), cert.
denied, 486 U.S. 1059 (1988); J.P. Morgan & Co. Incorporated, et al.,
75 Federal Reserve Bulletin 192 (1989) (1989 Section 20 Order), aff'd
sub nom. Securities Industries Ass'n v. Board of Governors of the
Federal Reserve System, 900 F.2d 360 (D.C. Cir. 1990), as modified by
Order dated September 21, 1989, 75 Federal Reserve Bulletin 751 (1989)
(Modification Order). Applicant has stated that it will conduct the
proposed underwriting and dealing activities in bank-ineligible
securities using the same methods and procedures, and subject to the
same prudential limitations established by the Board in the 1987
Section 20 Order, and the 1989 Section 20 Order, as modified by the
Modification Order, including the Board's 10 percent revenue limitation
on such activities.\1\ 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.
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\1\ Applicant is proposing that Company have two director
interlocks with Applicant's subsidiary banks. These directors would
not be officers of Company or the subsidiary banks, would not have
authority to handle day-to-day business of the banks or handle
individual bank transactions. These directors would not make up a
majority of Company's board of directors. See, e.g., Synovus
Financial Corp., 77 Federal Reserve Bulletin 954, 955 (1991); Banc
One Corporation, 76 Federal Reserve Bulletin 756, 758 (1990).
Applicant is also proposing that affiliate banks of Company broker
or act as riskless principal for bank-eligible securities
underwritten or dealt in by Company in a manner previously approved
by the Board. See BankAmerica Corporation, 79 Federal Reserve
Bulletin 1163, 1165 (1993).
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The Board also has previously approved, by order, the proposed
private placement and riskless principal activities, and Applicant has
stated that it will conduct these proposed activities using the same
methods and procedures and subject to the prudential limitations
established by the Board in its previous orders. See Dauphin Deposit
Corporation, 77 Federal Reserve Bulletin 672 (1991); J.P. Morgan &
Company Incorporated, 76 Federal Reserve Bulletin 26 (1990); and
Bankers Trust New York Corporation, 75 Federal Reserve Bulletin 829
(1989).
The Board also has previously approved acting as originator,
principal, broker or agent with respect to interest rate and currency
swaps, caps, floors, collars, and options on swaps, caps, floors and
collars, including providing advice to institutional customers
regarding such financial instruments. See, e.g., The Sanwa Bank,
Limited, 77 Federal Reserve Bulletin 64 (1991); The Fuji Bank, Limited,
76 Federal Reserve Bulletin 768 (1990); The Sumitomo Bank, Limited, 75
Federal Reserve Bulletin 582 (1989). Applicant proposes to engage in
these swap activities subject to the provisions and conditions
established by the Board in its previous orders.
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 activities 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.
Applicant believes that the proposed activities will benefit the public
by increasing customer convenience, increasing competition in the
market for the proposed services, and promoting gains in efficiency.
Applicant believes that the proposed activities will not result in any
unsound banking practices or other adverse effects.
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, D.C. 20551, not later than
September 28, 1994. 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 Chicago.
Board of Governors of the Federal Reserve System, August 31,
1994.
William W. Wiles,
Secretary of the Board.
[FR Doc. 94-21973 Filed 9-6-94; 8:45 am]
BILLING CODE 6210-01-F
