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Release Date: November 26, 1997


For immediate release

The Federal Reserve Board today announced its approval of the notice filed by U.S. Bancorp to engage de novo, through its wholly owned subsidiary, U.S. Bancorp Investments, Inc., both of Minneapolis, Minnesota, in a variety of securities-related activities, including underwriting and dealing in, to a limited extent, certain types of bank-ineligible securities.

Attached is the Board's Order relating to this action.


U.S. Bancorp
Minneapolis, Minnesota

Order Approving Notice to Engage in Nonbanking Activities

U.S. Bancorp, Minneapolis, Minnesota ("USB"), 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 de novo through its wholly owned subsidiary, U.S. Bancorp Investments, Inc., Minneapolis, Minnesota ("Company"), in the following activities:1

(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");

(2) Providing financial and investment advisory services, pursuant to section 225.28(b)(6) of Regulation Y (12 C.F.R. 225.28(b)(6));

(3) Providing securities brokerage, private placement, riskless principal, futures commission merchant, and other transactional services, pursuant to section 225.28(b)(7) of Regulation Y (12 C.F.R. 225.28(b)(7)); and

(4) Providing investing and trading services, pursuant to section 225.28(b)(8) of Regulation Y (12 C.F.R. 225.28(b)(8)).

In addition, USB proposes that Company engage in lending and loan servicing, activities related to lending, lease financing, management consulting, and insurance agency activities that are related to Company's underwriting and dealing, private placement, riskless principal, and other securities activities.2 These activities would be conducted in accordance with the Board's Regulation Y.3

Notice of the proposal, affording interested persons an opportunity to submit comments, has been published (62 Federal Register 53,784 (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.

USB, with total consolidated assets of approximately $71.8 billion, is the 14th largest banking organization in the United States.4 USB operates bank subsidiaries in 17 states, and engages through subsidiaries in a broad range of permissible nonbanking activities. Company is and, following consummation of the proposal, 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.) ("1934 Act") and a member of the National Association of Securities Dealers, Inc. ("NASD"). Accordingly, Company is and will remain subject to the recordkeeping and reporting obligations, fiduciary standards, and other requirements of the 1934 Act, the SEC, and the NASD. Following consummation of the proposal, Company also would be registered as a futures commission merchant with the Commodity Futures Trading Commission ("CFTC") and would be subject to the recordkeeping and reporting obligations, fiduciary standards, and other requirements of the Commodity Exchange Act (7 U.S.C. 2 et seq.) and the CFTC.

Underwriting and Dealing Activities
The Board has determined -- subject to the framework of prudential limitations to address the potential for conflicts of interests, unsound banking practices, or other adverse effects -- that the proposed activities of underwriting and dealing in bank-ineligible securities are so closely related to banking as to be a proper incident thereto within the meaning of section 4(c)(8) of the BHC Act.5

The Board also has 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.6 USB has committed that Company will conduct its bank-ineligible securities underwriting and dealing activities subject to the Board's 25-percent revenue limit.7 As a condition of this order, USB also would be required to conduct its bank-ineligible securities activities subject to the Operating Standards for section 20 subsidiaries.8

Other Activities Approved by Regulation
The Board previously has determined by regulation that extending credit and servicing loans; activities related to extending credit; leasing personal or real property; financial and investment advisory activities; securities brokerage, riskless principal, private placement, futures commission merchant, and other transactional services; investment and trading services; management consulting; and insurance agency activities are closely related to banking within the meaning of section 4(c)(8) of the BHC Act.9 USB has committed that it will conduct each of these activities in accordance with the BHC Act, Regulation Y, and the relevant Board interpretations and orders.

Proper Incident to Banking Standard
In order to approve the proposal, the Board also must determine that the proposed activities are a proper incident to banking, that is, that the proposed transaction "can reasonably be expected to produce benefits to the public . . . that outweigh possible adverse effects, such as undue concentration of resources, decreased or unfair competition, conflicts of interests, or unsound banking practices."10 As part of its evaluation of these factors, the Board considers the financial condition and managerial resources of the notificant and its subsidiaries and the effect the transaction would have on such resources.11 The Board has carefully examined the financial resources, management expertise, and risk management policies of USB and its subsidiaries. Based on all the facts of record, the Board concludes that financial and managerial considerations are consistent with approval.

The Board expects that the de novo entry of Company into the market for the proposed services would provide added convenience to USB's customers and would increase the level of competition among existing providers of these services. As noted above, USB 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, the Section 20 Orders, and the Modification 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 interests, 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 significantly adverse effects that would outweigh the public benefits of the proposal. Accordingly, the Board has determined that performance of the proposed activities by USB is a proper incident to banking for purposes of section 4(c)(8) of the BHC Act.

Conclusion
On the basis of all the facts of record, the Board has determined that the notice should be, and hereby is, approved, subject to all the terms and conditions in this order and the Section 20 Orders, as modified by the Modification Orders. The Board's approval of the proposal extends only to activities conducted within the limitations of those orders and this order, including the Board's reservation of authority to establish additional limitations to ensure that USB's activities are consistent with safety and soundness, avoidance of conflicts of interests, and other relevant considerations under the BHC Act. Underwriting and dealing in any manner other than as approved in this order and the Section 20 Orders (as modified by the Modification Orders) is not within the scope of the Board's approval and is not authorized for USB.

The Board's determination is subject to all the terms and conditions set forth in Regulation Y, including those in sections 225.7 and 225.25(c) of Regulation Y (12 C.F.R. 225.7 and 225.25(c)), and to the Board's authority to require such 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, and to prevent evasion of, the provisions 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 above-noted Board regulations and orders. These commitments and conditions are deemed to be conditions imposed in writing by the Board in connection with its findings and decisions, and, as such, may be enforced in proceedings under applicable law.

The 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 by the Federal Reserve Bank of Minneapolis, acting pursuant to delegated authority.

By order of the Board of Governors,12 effective November 26, 1997.

(signed) Jennifer J. Johnson

Jennifer J. Johnson

Deputy Secretary of the Board


Footnotes

1 Company currently is a wholly owned subsidiary of USB's lead bank subsidiary, U.S. Bank National Association, Minneapolis, Minnesota ("US Bank").

2 USB is authorized to engage in insurance agency activities pursuant to section 4(c)(8)(G) of the BHC Act, which authorizes those bank holding companies that engaged in insurance agency activities prior to 1971 with Board approval to engage in insurance agency activities.

3 Section 225.28(b)(1), (2), (3), (9), and (11)(vii) of Regulation Y (12 C.F.R 225.28(b)(1), (2), (3), (9), and (11)(vii)).

4 Asset and ranking data are as of June 30, 1997.

5 See Citicorp, et al., 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. 1988), 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), and Amendments to Restrictions in the Board's Section 20 Orders, 62 Federal Register 45,295 (1997) (collectively, "Section 20 Orders").

6 Compliance with the revenue limitation shall be calculated in accordance with the method stated in the Section 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").

7 Company may provide services that are necessary incidents to the proposed underwriting and dealing activities. Unless USB receives specific approval under section 4(c)(8) of the BHC Act to conduct the activities independently, Company must treat any revenues from the incidental activities as ineligible revenues subject to the Board's revenue limitation.

8 12 C.F.R. 225.200.

9 See 12 C.F.R. 225.28(b)(1), (2), (3), (6), (7), (8), (9), and (11)(vii).

10 See 12 U.S.C. 1843(c)(8).

11 See 12 C.F.R. 225.26.

12 Voting for this action: Chairman Greenspan and Governors Kelley, Phillips, Ferguson, and Gramlich. Absent and not voting: Vice Chair Rivlin and Governor Meyer.

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