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May 16, 2001

Carl V. Howard, Esq.
General Counsel – Bank Regulatory
Citigroup, Inc.
425 Park Avenue
Second Floor/Zone 2
New York, New York 10043

Dear Mr. Howard:

This is in response to your letters, dated July 13, 2000 and April 19, 2001, regarding the application of the anti-tying prohibitions of section 106 of the Bank Holding Company Act Amendments of 1970, 12 U.S.C. § 1972(1), and the Board’s safe harbor for combined-balance discounts, 12 C.F.R. 225.7(b)(2), to a combined-balance discount program that includes insurance products. You have indicated that Citibank (South Dakota), N.A. and its banking affiliates (collectively, "Citibank") wish to offer incentives to their credit card, mortgage, or 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 care insurance from insurance affiliates of Citibank. The incentives would include lower interest rates and/or other items, such as airline frequent flyer miles or contributions to accounts maintained by a customer with other Citibank affiliates.

You have requested confirmation that insurance products may be included among the products offered by a bank as part of a combined-balance discount program ("eligible products") operated pursuant to the Board’s safe harbor, if the program otherwise meets the requirements of the safe harbor. In the event insurance products may be included as eligible products, you have also asked for confirmation that the principal amount of annuity products may be counted towards the minimum balance, and that insurance premiums may be counted towards the minimum balance for non-annuity insurance products.

In order to qualify for the Board’s safe harbor, all deposits must be eligible products under the combined-balance discount program, and deposit balances must be weighed at least as much as nondeposit products towards the minimum balance. Eligible products under the safe harbor are those "products specified by the bank" as part of the combined-balance discount program. 12 C.F.R. 225.7(b)(2). The requirement that deposit balances be weighed at least as much as nondeposit products towards the minimum balance was included in the safe harbor by the Board in order to allow banks and their affiliates to price products they include in a combined-balance program in an economically rational way, while also limiting banks’ ability to use product weighting to require the purchase of certain non-traditional products.1 This requirement was intended specifically to provide for the inclusion of certain products with values that could be greater than the typical retail deposit, while allowing deposits to remain a viable way for customers to reach the minimum balance.

On this basis, it is my opinion that any financial products offered by a bank or its affiliates, including insurance products, may properly be included among the eligible products in that bank’s combined-balance discount program. The principal amount of an annuity may be counted in determining the size of a customer’s balance in eligible products, as may the premiums paid on non-annuity insurance products. The principal amount of an annuity is closely analogous to the principal amount of a deposit, as both represent a customer’s initial cash investment with the relevant financial institution. Similarly, insurance premiums are money actually paid by the customer to the insurance underwriter. You have indicated that in your proposed combined-balance discount program, deposits, credit card balances, and insurance premiums would count equally, dollar for dollar, towards the minimum balance.

This opinion is based on the facts and representations you have provided, and any material change in these facts or representations could result in a different conclusion and should be reported to Board staff. This opinion also assumes that the combined-balance discount program described in this letter is not conducted in a manner that results in anticompetitive practices, including any sale of nondeposit products in an anticompetitive way. Any finding by the Board that the program is resulting in anti-competitive practices will terminate Citibank’s eligibility to operate the program pursuant to the combined-balance discount safe harbor in Regulation Y and this letter. If you have any questions about this matter, please contact Andrew Baer (202/452-2246), of the Board’s legal staff.


(Signed) J. Virgil Mattingly

J. Virgil Mattingly

General Counsel


1. See Revisions Regarding Tying Restrictions, 60 Fed. Reg. 20,186, 20,188 (1995). Return to text

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