Richard Kim, Esq.
Assistant General Counsel
NationsBank Corporation
NationsBank Corporate Center
NC1-007-20-01
Charlotte, NC 28255

Dear Mr. Kim:

On behalf of NationsBank Corporation ("NationsBank"), you have requested an exemption from the tying limitations of the Bank Holding Company Act Amendments of 1970. Specifically, NationsBank seeks permission to vary the consideration charged for a variety of banking and nonbanking products based upon a customer opening a "Money Manager" account. For the reasons set forth below, the General Counsel, acting on authority delegated by the Board, has granted the requested exception.

The Accounts at Issue
The Money Manager account consists of a bank account with one of NationsBank's subsidiary banks and a securities brokerage account with NationsBanc Investments Inc. NationsBanc Investments is a wholly owned subsidiary of NationsBank, N.A., NationsBank's lead bank, engaged in providing brokerage services to retail customers. Customers who open Money Manager accounts would be eligible for improved terms on various products, including waivers of fees, higher interest rates on deposit products, and lower interest rates on loans.

A customer could open a Money Manager account in three ways. First, a customer could deposit a minimum of $10,000 in a demand deposit account (the "DDA") with any NationsBank subsidiary bank. Funds held in the DDA would be swept into a brokerage account with NationsBanc Investments. Funds would be transferred back to the DDA as needed to pay checks or if the customer wished to withdraw funds. Otherwise, no balance would be maintained in the DDA. Second, a customer could purchase securities in an amount equal to at least $10,000 and hold them in an account with NationsBanc Investments. Third, a customer could transfer to NationsBanc Investments any securities with a market value of at least $10,000.

NationsBank's subsidiary banks already offer an "Advantage" banking program through which customers can obtain the same benefits available through the Money Manager account. In order to maintain an Advantage account, a customer must pay a monthly fee of approximately $20, or alternatively maintain $5,000 in a DDA or savings account, $10,000 in a certificate of deposit, or $15,000 in combined deposit balances (including individual retirement accounts). The Advantage program also is available free of charge if a customer borrows at least $20,000 under a line of credit or installment loan or at least $100,000 under a mortgage loan.

The Anti-tying Statute
Section 106(b) of the Bank Holding Company Act Amendments of 1970 (12 U.S.C. 1972) generally prohibits a bank from tying a product or service to another product or service offered by the bank or by any of its affiliates. A bank engages in a tie for purposes of section 106 by conditioning the availability of, or offering a discount on, one product or service on the condition that the customer obtain some additional product or service from the bank or from any of its affiliates.

Section 106 contains an explicit exception (the "statutory traditional bank product exception") that permits a bank to tie a product or service to a loan, discount, deposit, or trust service offered by that bank. The Board has extended this exception by providing that a bank also may vary the consideration for a traditional bank product on condition that the customer obtain a traditional bank product from an affiliate (the "regulatory traditional bank product exception").¹

In a 1995 rulemaking, the Board addressed the effect of section 106 on combined-balance discounts, where a bank offers improved terms on various services in return for a customer's maintaining a specified combined minimum balance in specified products. The Board found that because section 106 covers any condition or requirement that a customer purchase "some additional product," the statute would appear to include combined-balance discounts. The Board found that the statutory and regulatory traditional bank product exceptions would clearly allow combined-balance discounts where all eligible products were traditional bank products. However, a requirement that the customer purchase non-traditional bank products would be prohibited by the statute.

The more difficult question was whether section 106 prohibited a combined-balance discount where customers were allowed to choose among a mix of traditional and non-traditional products. The Board declined to specify how section 106 would apply in this context, but instead established a regulatory safe harbor. The purpose of the safe harbor was to ensure that customers wishing to obtain a package of discounts and other services from a bank would not be required to purchase nonbanking products from an affiliate of the bank. If deposit products can be used to meet any required minimum balance, then this goal is served.

The Board recognized, however, that discount arrangements other than those within the safe harbor also may be consistent with the purposes of section 106. The Board stated that it would continue to consider such plans on a case-by-case basis and delegated authority to approve such plans to the General Counsel.

Analysis
NationsBank's proposed Money Manger account would not comply with section 106 or qualify for the combined-balance discount safe harbor because no traditional bank product would be counted toward the required minimum balance. You have represented that the way accounts are maintained at NationsBank makes it impractical as an operational matter to combine balances at a NationsBank bank subsidiary with balances at NationsBanc Investments. Therefore, just as it is not possible to include deposit balances towards the required minimum balance of the Money Manager account, it also is not possible to include brokerage balances towards the required minimum balance of the Advantage account.

The question posed by your exemption request is whether the purposes of section 106 and the safe harbor are served if a customer is given the choice of two accounts offering the same package of discounts and other banking services -- with one account (Money Manager) conditioned on maintaining a minimum balance in brokerage products, and the other account (Advantage) conditioned on maintaining a minimum balance in deposit products.

You have represented that the Advantage product will continue to be an actively marketed and readily available option for NationsBank customers. There are already 600,000 Advantage customers, and NationsBank intends to increase this number significantly. NationsBank employs a Vice President in Marketing and a Vice President in Marketing Communications who are dedicated to managing and marketing the Advantage account. Thus, a customer wishing to obtain the desired package of banking services without becoming a customer of NationsBanc Investments will be able to do so.

Acting on delegated authority, the Board's General Counsel has concluded that, given the existence of the Advantage account and the operational problems associated with combining bank and brokerage balances in either the Advantage or Money Manager account, the Money Manager does not raise the concerns about coercion and anti-competitiveness that section 106 was intended to address, and is consistent with the purposes of the safe harbor for combined balance discounts. Accordingly, based upon the facts and representations contained in your letter, your request for an exemption is granted. The Board may terminate this exemption if it finds pursuant to 12 CFR 225.7(c)(2) that the exception is resulting in anticompetitive practices, or if the facts upon which the exemption was granted have changed.

Very truly yours,

(signed) William W. Wiles

William W. Wiles

Footnotes 1 See 12 CFR 225.7(b)(2).