Mr. William R. Colmery
Senior Vice President/Legal Counsel
    Secretary
Fulton Financial Corporation
P.O. Box 4887
Lancaster, Pennsylvania 17604

Dear Mr. Colmery:

This is in response to your request for an interpretation that section 106 of the Bank Holding Company Act Amendments of 1970 (12 U.S.C. § 1972) does not prohibit Fulton Financial Corporation, Lancaster, Pennsylvania ("Fulton"), from offering its shareholders a premium above the prevailing rate of interest on certificates of deposit of a specified maturity at any of Fulton's subsidiary banks. Under your proposal, Fulton would send shareholders on a particular "record date" a coupon that would entitle each shareholder to a 20 basis point premium on a one-time purchase of a certificate of deposit of any denomination up to $100,000.¹ The coupon would not be transferable and would become void if not used prior to its expiration date.

You state that this promotion is designed to: (1) foster better shareholder relations by enhancing the value of owning stock of Fulton; (2) encourage shareholders to establish, or expand, their banking relationships with Fulton's subsidiary banks; and (3) generate deposits at Fulton's subsidiary banks. You also represent that the promotion would not be available to directors and executive officers of Fulton or its subsidiaries, or to the general public. Moreover, the applicable certificate of deposit would remain available to the general public at the prevailing market rate. Finally, you indicate that similar marketing promotions are currently being offered by nonbank competitors of bank holding companies.

Section 106 generally prohibits a bank from conditioning the availability of, or varying the consideration charged for, any product or service on the condition or requirement that a customer: (1) obtain some additional product or service from such bank or an affiliate; or (2) provide some additional product or service to such bank or an affiliate. Although section 106 applies only when a bank offers the tying product, the Board in 1971 extended the same restrictions to bank holding companies and their nonbank subsidiaries.² According to the legislative history, "(t)he purpose of this provision is to prohibit anticompetitive practices which require bank customers to accept or provide some other service or product or refrain from dealing with other parties in order to obtain the bank product or service they desire."³

The stock of Fulton does not appear to be a "product or service" "obtained" by customers from Fulton or "provided" to Fulton by customers. Instead, Fulton stock is an ownership interest in the company that is obtained through purchases on the open market. Unless Fulton required a customer to purchase stock from a brokerage unit of Fulton or its affiliates in order to receive the certificate of deposit premium, the proposed arrangement would not constitute a "tie" for purposes of section 106. Accordingly, the proposed arrangement is not prohibited by the terms of section 106 or inconsistent with its concerns for anticompetitive practices.

Based on the facts presented in your letter, the Federal Reserve System would not take any action to stop the proposed marketing arrangement. In the event that facts material to this determination are otherwise than as represented, or that Fulton has failed to disclose other material facts, this determination may be revoked. You also should note that this opinion would not bind any court. If you have any questions regarding this matter, please contact David Simon (202/452-3611) of my staff.

Sincerely,

(signed) J. Virgil Mattingly

J. Virgil Mattingly

Footnotes 1. You also indicate that Fulton may limit the promotion to holders of 100 or more shares to discourage the ownership of a nominal number of shares principally for the purpose of benefitting from future promotions. Return to text 2. See 12 C.F.R. 225.7(a).Return to text 3. S. Rep. No. 1084, 91st Cong. 2d Sess. 17 (1970).Return to text