|For immediate release|
The Federal Reserve Board today announced its approval of the notice of CoreStates Financial Corporation, Philadelphia, Pennsylvania, to engage through its wholly owned subsidiary, CoreStates Securities Corporation, Philadelphia, Pennsylvania, in certain nonbanking activities, including underwriting and dealing in, to a limited extent, certain municipal revenue bonds, 1-4 family mortgage-related securities, consumer receivable-related securities, and commercial paper.
Attached is the Board's Order relating to this action.
CoreStates Financial Corporation
CoreStates Financial Corporation, Philadelphia, Pennsylvania ("CoreStates"), 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 engage in the following nonbanking activities through its wholly owned subsidiary, CoreStates Securities Corporation, Philadelphia, Pennsylvania ("Company"):
(1) Underwriting and dealing in, to a limited extent, certain municipal revenue bonds (including certain unrated municipal revenue bonds), 1-4 family mortgage-related securities, consumer receivable-related securities, and commercial paper (collectively, "bank-ineligible securities");In addition, CoreStates proposes that Company engage in extending credit and servicing loans, activities related to extending credit, leasing personal and real property, and management consulting and counseling activities that are related to Company's underwriting and dealing, private placement, riskless principal, and other securities activities. These activities would be conducted in accordance with the Board's Regulation Y.1
Notice of the proposal, affording interested persons an opportunity to submit comments, has been published (62 Federal Register 32,117 (1997)). 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.
CoreStates, with total consolidated assets of approximately $45.3 billion, is the 21st largest banking organization in the United States.2 CoreStates operates bank subsidiaries in Pennsylvania, New Jersey, and Delaware, and engages through its subsidiaries in a broad range of permissible nonbanking activities. 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 a member of the National Association of Securities Dealers, Inc. ("NASD"). Accordingly, Company is, and will continue to be, subject to the recordkeeping 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
The Board also has previously determined that conduct of the proposed activities is consistent with section 20 of the Glass-Steagall Act (12 U.S.C. § 377), provided that the company engaged in underwriting and dealing activities derives no more than 25 percent of its gross revenues from underwriting and dealing in bank-ineligible securities over a two-year period.5 CoreStates has committed that Company will conduct its bank-ineligible securities underwriting and dealing activities subject to the Board's revenue limit.6
Other Activities Approved by Regulation
Proper Incident to Banking Standard
The Board expects that the de novo entry of Company into the market for the proposed services would provide added convenience to CoreStates's customers and would increase the level of competition among existing providers of these services. As noted above, CoreStates has committed that Company will conduct its bank-ineligible securities underwriting and dealing activities in accordance with the prudential framework established by the Board's Section 20 Orders. Under the framework and conditions established in this order and the Section 20 Orders, the Board concludes that Company's proposed limited conduct of underwriting and dealing in bank-ineligible securities is not likely to result in significantly adverse effects, such as undue concentration of resources, decreased or unfair competition, conflicts of interest, or unsound banking practices that would outweigh the public benefits. Similarly, the Board finds no evidence that Company's riskless principal, private placement, and other nonbanking activities -- conducted under the framework and conditions established in this order and Regulation Y -- would likely result in any significant adverse effects that would outweigh the public benefits of the proposal. Accordingly, the Board has determined that performance of the proposed activities by CoreStates are a proper incident to banking for purposes of section 4(c)(8) of the BHC Act.
This transaction shall not be commenced later than three months after the effective date of this order, unless such period is extended for good cause by the Board or the Federal Reserve Bank of Philadelphia, acting pursuant to delegated authority.
By order of the Board of Governors,12 effective August 4, 1997.
(signed) Jennifer J. Johnson
Jennifer J. Johnson
1 Sections 225.28(b)(1), (b)(2), (b)(3), and (b)(9) of Regulation Y (12 C.F.R. 225.28(b)(1), (b)(2), (b)(3), and (b)(9)).
2 Asset and ranking data are as of March 31, 1997.
3 See 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) (collectively, "Section 20 Orders").
4 In connection with its proposal, CoreStates proposes to underwrite and deal in unrated municipal revenue bonds. CoreStates has committed that Company will not underwrite unrated municipal revenue bonds until the Federal Reserve System has reviewed Company's policies and procedures with respect to such activities. In conducting this activity, Company will in each case conduct an independent credit review to determine that the securities are of investment grade quality. CoreStates also has provided other commitments previously relied on by the Board in authorizing a section 20 company to underwrite and deal in unrated municipal revenue bonds. See Letter Interpreting Section 20 Orders, 81 Federal Reserve Bulletin 198 (1995); BOK Financial Corporation, 83 Federal Reserve Bulletin 510 (1997).
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) and 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 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 As provided in the Section 20 Orders, no corporate reorganization of any subsidiary engaged in underwriting and dealing in bank-ineligible securities may be consummated without prior Board approval. CoreStates has stated that Company will not engage in any additional activities or transfer assets or businesses into Company without first consulting with the Board.
8 See 12 C.F.R. 225.28(b)(1), (b)(2), (b)(3), (b)(6), (b)(7)(ii), (b)(7)(iii), (b)(7)(v), (b)(8)(ii), and (b)(9).
9 CoreStates also proposes that Company enter into a dual-employee arrangement with a third party insurance agent to sell annuity products. CoreStates has committed that the dual-employee arrangement will be consistent with the BHC Act and the restrictions and limitations previously established by the Board on such insurance sales arrangements. See, e.g., Letter dated December 6, 1995, from J. Virgil Mattingly, Jr., to Russell J. Bruemmer, Esq.
10 12 U.S.C. § 1843(c)(8).
11 See 12 C.F.R. 225.24; see also The Fuji Bank, Limited, 75 Federal Reserve Bulletin 94 (1989); Bayerische Vereinsbank AG, 73 Federal Reserve Bulletin 155 (1987).
12 This action was taken pursuant to the Board's Rules Regarding Delegation of Authority (12 C.F.R. 265.4(b)(1)) by a committee of Board members. Voting for this action: Chairman Greenspan and Governors Phillips and Meyer. Absent and noting voting: Vice Chair Rivlin and Governor Kelley.
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1997 Orders on banking applications