12 CFR 225.104 -

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§ 225.104 “Services” under section 4(c)(1) of Bank Holding Company Act.
(a) Section 4(c)(1) of the Bank Holding Company Act, among other things, exempts from the nonbanking divestment requirements of section 4(a) of the Act shares of a company engaged “solely in the business of furnishing services to or performing services for” its bank holding company or subsidiary banks thereof.
(b) The Board of Governors has had occasion to express opinions as to whether this section of law applies to the following two sets of facts:
(1) In the first case, Corporation X, a nonbanking subsidiary of a bank holding company (Holding Company A), was engaged in the business of purchasing installment paper suitable for investment by banking subsidiaries of Holding Company A. All installment paper purchased by Corporation X was sold by it to a bank which is a subsidiary of Holding Company A, without recourse, at a price equal to the cost of the installment paper to Corporation X, and with compensation to the latter based on the earnings from such paper remaining after certain reserves, expenses and charges. The subsidiary bank sold participations in such installment paper to the other affiliated banks of Holding Company A which desired to participate. Purchases by Corporation X consisted mainly of paper insured under Title I of the National Housing Act and, in addition, Corporation X purchased time payment contracts covering sales of appliances by dealers under contractual arrangements with utilities, as well as paper covering home improvements which was not insured. Pursuant to certain service agreements, Corporation X made all collections, enforced guaranties, filed claims under Title I insurance and performed other services for the affiliated banks. Also Corporation X rendered to banking subsidiaries of Holding Company A various accounting, statistical and advisory services such as payroll, life insurance and budget loan installment account.
(2) In the second case, Corporation Y, a nonbanking subsidiary of a bank holding company (Holding Company B, which was also a bank), solicited business on behalf of Holding Company B from dealers, throughout several adjoining or contiguous States, who made time sales and desired to convert their time sales paper into cash; but Corporation Y made no loans or purchases of sales contracts and did not discount or advance money for time sales obligations. Corporation Y investigated credit standings of purchasers obligated on time sale contracts to be acquired by Holding Company B, Corporation Y received from dealers the papers offered by them and inspected such papers to see that they were in order, and transmitted to Holding Company B for its determination to purchase, including, in some cases, issuance of drafts in favor of dealers in order to facilitate their prompt receipt of payment for installment paper purchased by Holding Company B. Corporation Y made collections of delinquent paper or delinquent installments, which sometimes involved repossession and resale of the automobile or other property which secured the paper. Also, upon request of purchasers obligated on paper held by Holding Company B, Corporation Y transmitted installment payments to Holding Company B. Holding Company B reimbursed Corporation Y for its actual costs and expenses in performing the services mentioned above, including the salaries and wages of all Corporation Y officers and employees.
(c) While the term “services” is sometimes used in a broad and general sense, the legislative history of the Bank Holding Company Act indicates that in section 4(c)(1) the word was meant to be somewhat more limited in its application. An early version of the bill specifically exempted companies engaged in serving the bank holding company and its subsidiary banks in “auditing, appraising, investment counseling”. The statute as finally enacted does not expressly mention any specific type of servicing activity for exemption. In recommending the change, the Senate Banking and Currency Committee stated that the types of services contemplated are “in the fields of advertising, public relations, developing new business, organizations, operations, preparing tax returns, personnel, and many others”, which indicates that latitude should be given to the range of activities contemplated by this section beyond those specifically set forth in the early draft of the bill. (84th Cong., 2d Sess., Senate Report 1095, Part 2, p. 3.) It nevertheless seems evident that Congress intended such services to be types of activities generally comparable to those mentioned above from the early bill (“auditing, appraising, investment counseling”) and in the excerpt from the Committee Report on the later bill (“advertising, public relations, developing new business, organization, operations, preparing tax returns, personnel, and many others”). This legislative history and the context in which the term “services” is used in section 4(c)(1) seem to suggest that the term was in general intended to refer to servicing operations which a bank could carry on itself, but which the bank or its holding company chooses to have done through another organization. Moreover, the report of the Senate Banking and Currency Committee indicated that the types of servicing permitted under section 4(c)(1) are to be distinguished from activities of a “financial, fiduciary, or insurance nature”, such as those which might be considered for possible exemption under section 4(c)(6) of the Act.
(d) With respect to the first set of facts, the Board expressed the opinion that certain of the activities of Corporation X, such as the accounting, statistical and advisory services referred to above, may be within the range of servicing activities contemplated by section 4(c)(1), but that this would not appear to be the case with the main activity of Corporation X, which was the purchase of installment paper and the resale of such paper at cost, without recourse, to banking subsidiaries of Holding Company A. This latter and basic activity of Corporation X appeared to involve essentially a financial relationship between it and the banking subsidiaries of Holding Company A and appeared beyond the category of servicing exemptions contemplated by section 4(c)(1) of the Act. Accordingly, it was the Board's view that Corporation X could not be regarded as qualifying under section 4 (c)(1) as a company engaged “solely in the business of furnishing services to or performing services for” Holding Company A or subsidiary banks thereof.
(e) With respect to the second set of facts, the Board expressed the opinion that some of the activities engaged in by Corporation Y were clearly within the range of servicing activities contemplated by section 4(c)(1). There was some question as to whether or not some of the other activities of Corporation Y mentioned above could meet the test, but on balance, it seemed that all such activities probably were activities in which Holding Company B, which as already indicated was a bank, could itself engage, at the present locations of Corporation Y, without being engaged in the operation of bank branches at those locations. In the circumstances, while the question was not free from doubt, the Board expressed the opinion that the activities of Corporation Y were those of a company engaged “solely in the business of furnishing services to or performing services for” Holding Company B within the meaning of section 4(c)(1) of the Act, and that, accordingly, the control by Holding Company B of shares in Corporation Y was exempted under that section.
[23 FR 2675, May 23, 1958. Redesignated at 36 FR 21666, Nov. 12, 1971]

Title 12 published on 2014-01-01

The following are only the Rules published in the Federal Register after the published date of Title 12.

For a complete list of all Rules, Proposed Rules, and Notices view the Rulemaking tab.

  • 2014-07-01; vol. 79 # 126 - Tuesday, July 1, 2014
    1. 79 FR 37166 - Interagency Guidelines Establishing Information Security Standards
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      FEDERAL RESERVE SYSTEM
      Final rule; technical amendment.
      Effective Date: This rule is effective July 31, 2014.
      12 CFR Parts 208 and 225

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United States Code
U.S. Code: Title 12 - BANKS AND BANKING

§ 1817 - Assessments

§ 1818 - Termination of status as insured depository institution

§ 1828 - Regulations governing insured depository institutions

§ 1831i - Agency disapproval of directors and senior executive officers of insured depository institutions or depository institution holding companies

12 U.S. Code § 1801 to 1805 - Omitted

§ 1843 - Interests in nonbanking organizations

§ 1844 - Administration

§ 1851 - Prohibitions on proprietary trading and certain relationships with hedge funds and private equity funds

§ 1972 - Certain tying arrangements prohibited; correspondent accounts

§ 3106 - Nonbanking activities of foreign banks

§ 3108 - Regulation and enforcement

§ 3310 - Establishment of Appraisal Subcommittee

§ 3331 - Purpose

§ 3332 - Functions of Appraisal Subcommittee

§ 3333 - Chairperson of Appraisal Subcommittee; term of Chairperson; meetings

§ 3334 - Officers and staff

§ 3335 - Powers of Appraisal Subcommittee

§ 3336 - Procedures for establishing appraisal standards and requiring use of certified and licensed appraisers

§ 3337 - Startup funding

§ 3338 - Roster of State certified or licensed appraisers; authority to collect and transmit fees

§ 3339 - Functions of Federal financial institutions regulatory agencies relating to appraisal standards

§ 3340 - Time for proposal and adoption of standards

§ 3341 - Functions of Federal financial institutions regulatory agencies relating to appraiser qualifications

§ 3342 - Transactions requiring services of State certified appraiser

§ 3343 - Transactions requiring services of State licensed appraiser

§ 3344 - Time for proposal and adoption of rules

§ 3345 - Certification and licensing requirements

§ 3346 - Establishment of State appraiser certifying and licensing agencies

§ 3347 - Monitoring of State appraiser certifying and licensing agencies

§ 3348 - Recognition of State certified and licensed appraisers for purposes of this chapter

§ 3349 - Violations in obtaining and performing appraisals in federally related transactions

§ 3350 - Definitions

§ 3351 - Miscellaneous provisions

§ 3907 - Capital adequacy

§ 3909 - General authorities

U.S. Code: Title 15 - COMMERCE AND TRADE

Title 12 published on 2014-01-01

The following are ALL rules, proposed rules, and notices (chronologically) published in the Federal Register relating to 12 CFR 225 after this date.

  • 2014-07-01; vol. 79 # 126 - Tuesday, July 1, 2014
    1. 79 FR 37166 - Interagency Guidelines Establishing Information Security Standards
      GPO FDSys XML | Text
      FEDERAL RESERVE SYSTEM
      Final rule; technical amendment.
      Effective Date: This rule is effective July 31, 2014.
      12 CFR Parts 208 and 225