|For immediate release|
The Federal Reserve Board today announced its approval of the notification of PNC Bank Corp., Pittsburgh, Pennsylvania, to engage in underwriting and dealing, to a limited extent, in all types of debt and equity securities through its subsidiary, PNC Capital Markets, Inc., Pittsburgh, Pennsylvania.
Attached is the Board's Order relating to this action.
PNC Bank Corp.
PNC Bank Corp. ("PNC"), a bank holding company within the meaning of the Bank Holding Company Act ("BHC Act"), has requested the Board's approval under section 4(c)(8) of the BHC Act (12 U.S.C. § 1843(c)(8)) and section 225.24 of the Board's Regulation Y (12 C.F.R. 225.24) to expand the activities of its section 20 subsidiary, PNC Capital Markets, Inc., Pittsburgh, Pennsylvania ("Company"), to include underwriting and dealing in, to a limited extent, all types of debt and equity securities except ownership interests in open-end investment companies. PNC seeks approval for Company to conduct the proposed underwriting and dealing activities worldwide.
Notice of the proposal, affording interested persons an opportunity to submit comments, has been published (63 Federal Register 50,914 (1998)). The time for filing comments has expired, and the Board has considered the notice and all comments received in light of the factors set forth in section 4(c)(8) of the BHC Act.
PNC, with total consolidated assets of approximately $75.9 billion, is the 14th largest banking organization in the United States.1 PNC's subsidiary depository institutions operate in nine states, and PNC engages through other subsidiaries in a broad range of permissible nonbanking activities. Company currently engages in limited underwriting and dealing in certain types of bank-ineligible securities2 as permitted under section 20 of the Glass-Steagall Act (12 U.S.C. § 377).3 Company is, and will continue to be, registered as a broker-dealer with the Securities and Exchange Commission ("SEC") under the Securities Exchange Act of 1934 (15 U.S.C. § 78a et seq.) and is a member of the National Association of Securities Dealers, Inc. ("NASD"). Company, therefore, is subject to the record-keeping and reporting obligations, fiduciary standards, and other requirements of the Securities Exchange Act of 1934, the SEC, and the NASD.
Underwriting and Dealing in Bank-Ineligible Securities
PNC has committed that Company will conduct its underwriting and dealing activities using the methods and procedures and subject to the prudential limitations established by the Board in the Section 20 Orders. PNC also has committed that Company will conduct its bank-ineligible securities underwriting and dealing activities subject to the Board's revenue restriction. As a condition of this order, PNC is required to conduct its bank-ineligible securities activities subject to the revenue restriction and Operating Standards established for section 20 subsidiaries.6
As part of its review of the statutory factors, the Board considers the financial and managerial resources of the notificant and its subsidiaries and the effect the transaction would have on such resources.8 In considering the financial resources of the notificant, the Board has reviewed the capitalization of PNC and Company in accordance with the standards set forth in the Section 20 Orders and finds the capitalization of each to be consistent with approval. This determination is based on all the facts of record, including PNC's projections of the volume of Company's underwriting and dealing activities in bank-ineligible securities.
The Board also has reviewed the managerial resources of each of the entities involved in this proposal in light of examination reports and other supervisory information. PNC requested that the Board perform a debt-only infrastructure review of Company and stated that it later would request that the Board perform an equity infrastructure review of Company. In connection with the proposal, the Federal Reserve Bank of Cleveland ("Reserve Bank") has reviewed the policies and procedures of Company for underwriting and dealing in all types of debt securities, including Company's operational and managerial infrastructure, computer, audit, and accounting systems and internal risk management procedures and controls. The Board has determined on the basis of the infrastructure review that Company has established policies and procedures to ensure compliance with this order and the Section 20 Orders for underwriting and dealing in debt securities. As discussed below, a satisfactory infrastructure review of Company related to underwriting and dealing in all types of equity securities must be completed before Company may engage in these activities. On the basis of the Reserve Bank's review of Company's debt underwriting and dealing policies and procedures and all other facts of record, including the commitments provided in this case and the proposed managerial and risk management systems of Company, and subject to the completion of a satisfactory infrastructure review of Company related to underwriting and dealing in all types of equity securities, the Board has concluded that financial and managerial considerations are consistent with approval of the notice.
Based on all the facts of record, the Board has determined that performance of the proposed activities by PNC, under the framework established in this and prior decisions, can reasonably be expected to produce public benefits that outweigh any adverse effects of the proposal. Accordingly, the Board has determined that the performance of the proposed activities by PNC is a proper incident to banking for purposes of section 4(c)(8) of the BHC Act.
Company may commence underwriting and dealing in all types of debt securities immediately. The Board's approval of the proposed underwriting and dealing in all types of equity securities, however, is conditioned on a future determination by the Board that Company has established policies and procedures for equity underwriting and dealing to ensure compliance with the requirements of this order, the Section 20 Orders, and the Modification Orders, including Company's operational and managerial infrastructure, computer, audit, and accounting systems and internal risk management procedures and controls. After notification by the Board that this condition has been satisfied, Company may commence the proposed equity underwriting and dealing activities, subject to the other conditions of this order, the Section 20 Orders, and the Modification Orders.
The Board's determination also is subject to all the terms and conditions set forth in Regulation Y, including those in sections 225.7 and 225.25(c) (12 C.F.R. 225.7 and 225.25(c)), and to the Board's authority to require modification or termination of the activities of a bank holding company or any of its subsidiaries as the Board finds necessary to ensure compliance with, or to prevent evasion of, the provisions and purposes of the BHC Act and the Board's regulations and orders issued thereunder. The Board's decision is specifically conditioned on compliance with all the commitments made in connection with this notice, including the commitments discussed in this order and the conditions set forth in this order and the Board regulations and orders noted above. The commitments and conditions are deemed to be conditions imposed in writing by the Board in connection with its findings and decision and, as such, may be enforced in proceedings under applicable law.
This proposal shall not be consummated later than three months after the effective date of this order, unless such period is extended for good cause by the Board or the Reserve Bank, acting pursuant to delegated authority.
By order of the Board of Governors,9 effective November 16, 1998.
(signed) Robert deV. Frierson
Robert deV. Frierson
1 Asset and ranking data are as of June 30, 1998.
2 As used in this order, "bank-ineligible securities" refers to all types of debt and equity securities that a bank may not underwrite or deal in directly under section 16 of the Glass-Steagall Act (12 U.S.C. § 24(7)).
3 Company has authority to underwrite and deal in, to a limited extent, certain municipal revenue bonds, 1-4 family mortgage-related securities, commercial paper, and consumer-receivable-related securities. See PNC Financial Corp., 73 Federal Reserve Bulletin 742 (1987), and PNC Financial Corp., 75 Federal Reserve Bulletin 396 (1989). Company also is authorized to engage in a variety of other nonbanking activities.
4 See J.P. Morgan & Co. Inc., et al., 75 Federal Reserve Bulletin 192 (1989), aff'd sub nom. Securities Industry Ass'n v. Board of Governors of the Federal Reserve System, 900 F.2d 360 (D.C. Cir. 1990); Citicorp, 73 Federal Reserve Bulletin 473 (1987), 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), as modified by Review of Restrictions on Director, Officer and Employee Interlocks, Cross-Marketing Activities, and the Purchase and Sale of Financial Assets Between a Section 20 Subsidiary and an Affiliated Bank or Thrift, 61 Federal Register 57,679 (1996); Amendments to Restrictions in the Board's Section 20 Orders, 62 Federal Register 45,295 (1997); and Clarification to the Board's Section 20 Orders, 63 Federal Register 14,803 (1998) (collectively, "Section 20 Orders").
5 See Section 20 Orders. Compliance with the revenue limitation shall be calculated in accordance with the method stated in the Section 20 Orders, as modified by the Order Approving Modifications to the Section 20 Orders, 75 Federal Reserve Bulletin 751 (1989); 10 Percent Revenue Limit on Bank-Ineligible Activities of Subsidiaries of Bank Holding Companies Engaged in Underwriting and Dealing in Securities, 61 Federal Register 48,953 (1996); and Revenue Limit on Bank-Ineligible Activities of Subsidiaries of Bank Holding Companies Engaged in Underwriting and Dealing in Securities, 61 Federal Register 68,750 (1996) (collectively, "Modification Orders").
6 12 C.F.R. 225.200. Company may provide services that are necessary incidents to the proposed underwriting and dealing activities. Unless Company receives specific approval under section 4(c)(8) of the BHC Act to conduct the activities independently, any revenues from the incidental activities must be treated as ineligible revenues subject to the Board's revenue limitation.
7 12 U.S.C. § 1843(c)(8).
8 See 12 C.F.R. 225.26.
9 Voting for this action: Chairman Greenspan, Vice Chair Rivlin, and Governors Kelley, Meyer, Ferguson, and Gramlich.
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1998 Orders on banking applications