Financial Services Alert

FRB Grants Requests For Exemptions Under Section 23A Of The Federal Reserve Act And Under FRB's Anti- Tying Rules

The FRB published four interpretive letters in which it granted requests for exemptions to three bank holding companies from the limitations on transactions with affiliates under Section 23A of the Federal Reserve Act (" Section 23A") and to one bank holding company under the anti- tying provisions of the Bank Holding Company Act (the "BHC Act").

Section 23A. Section 23A historically has limited the ability of a bank holding company to contribute to its bank subsidiaries stock or assets of an entity that has liabilities at the time of the transfer. Each of the three requests under Section 23A, however, was deemed permissible by the FRB because it involved a corporate reorganization and was determined by the FRB "to be structured to ensure the quality of the transferred assets." The FRB agreed to exempt from Section 23A Chase Manhattan Corp. 's sale of investment banking businesses (which Chase Manhattan Corp. had recently acquired overseas) to its bank subsidiary, The Chase Manhattan Bank of New York. Similarly, the FRB granted an exemption from Section 23A to HSBC Bank USA, which acquired assets of a New York branch of a French commercial bank recently acquired by its parent, HSBC Holdings Plc. Finally, the FRB granted an exemption under Section 23A to Wells Fargo & Company (" Wells Fargo") to allow it to contribute all of the shares of stock of a nonbank subsidiary, Servus Financial Corporation (" Servus"), to Wells Fargo's subsidiary bank, Wells Fargo Bank of South Dakota, N. A., as part of a corporate restructuring. Servus is engaged in student loan servicing and lending activities.

Anti- Tying. Citigroup, Inc. (" Citigroup") asked the FRB to confirm that, under the FRB's "combined balance discounts" safe harbor to the anti- tying prohibitions of Section 106 of the BHC Act, Citigroup's banking subsidiary, Citibank (South Dakota), N. A. and Citigroup's banking affiliates (collectively "Citibank") may count premiums paid on insurance products toward the minimum requirement for the combined balance requirement under the safe harbor. Citigroup stated in its letter that Citibank desired to offer incentives (including lower interest rates) to its credit card, mortgage and loan customers who maintain a combined minimum balance in a package of products and services that include annuities, auto, homeowners, life and/ or long term...