Federal Reserve Release, Press Release; image with eagle logo links to home page
Release Date: August 3, 1998

For immediate release

The Federal Reserve Board today announced its approval of the notice of Royal Bank of Canada, Montreal, Quebec, Canada, to acquire New Security First Network Bank, Miami, Florida.

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


Royal Bank of Canada
Montreal, Quebec, Canada

Order Approving a Notice to Acquire a Savings Association

Royal Bank of Canada ("Royal Bank"), a foreign banking organization that is subject to 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. � 1848(c)(8)) to acquire all the voting shares of New Security First Network Bank, Miami, Florida ("Security First"), and thereby engage in operating a savings association.1

Notice of the proposal, affording interested persons an opportunity to submit comments, has been published (63 Federal Register 29,221 (1998)). 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.

Royal Bank, with total consolidated assets of approximately $164 billion, is the largest banking organization in Canada and the 56th largest banking organization in the world.2 In the United States, Royal Bank operates branches in New York, New York; Portland, Oregon; and San Juan, Puerto Rico; agencies in Los Angeles, California; and Miami, Florida; and representative offices in Chicago, Illinois; and Houston, Texas. Royal Bank also engages through subsidiaries in various securities-related, data processing, and foreign exchange activities closely related to banking.3

Closely Related to Banking Analysis
Section 4(c)(8) of the BHC Act provides that a bank holding company may, with Board approval, engage in any banking activity that the Board determines to be "so closely related to banking or managing or controlling banks as to be closely related thereto."4 Old Security First operates a single, full service office in Atlanta, Georgia, and focuses its efforts on providing banking and financial products and services to the public over the Internet. Royal Bank intends to enhance the products and services that Security First offers by providing additional financial and managerial resources to it and to expand Security First's business volume throughout the United States by increasing promotional activities. The Board previously has determined by regulation that the operation of a savings association by a bank holding company is closely related to banking for purposes of section 4(c)(8) of the BHC Act.5 The Board also previously has determined that providing data processing services related to providing banking and financial services over the Internet is closely related to banking.6

Proper Incident to Banking Analysis
In order to approve the proposal, the Board must determine that the proposed activities are a proper incident to banking, that is, that the proposal "can reasonably be expected to produce benefits to the public, such as greater convenience, increased competition, or gains in efficiency, that outweigh possible adverse effects, such as undue concentration of resources, decreased or unfair competition, or unsound banking practices."7

As part of its review of these factors, when acting on a proposal to acquire a savings association, the Board has traditionally considered the records of performance under the Community Reinvestment Act (12 U.S.C. � 2901 et seq.) ("CRA") of the institutions involved in the proposal.8 The Board has reviewed the record of performance of Old Security First in light of all the facts of record, including comments received on the proposal from Inner City Press/Community on the Move ("Commenter"). Commenter argues that Royal Bank's proposal to address CRA is not adequate.

The Board has reviewed the examination of the CRA performance record of Old Security First conducted by the Office of Thrift Supervision ("OTS"), the appropriate supervisory authority for Old Security First. An institution's most recent CRA performance evaluation is a particularly important consideration in the applications process because it represents a detailed on-site evaluation of the institution's overall record of performance under the CRA by its primary federal supervisor.9 Old Security First received an overall rating of "satisfactory" as a result of that evaluation of CRA performance, as of March 1996.

Royal Bank has not previously operated an insured depository institution subsidiary in the U.S. that is subject to CRA.10 As part of its application in this case, however, Royal Bank presented a proposed CRA plan for Security First. The plan includes the appointment of a CRA officer who would report to Royal Bank's board of directors; the employment of a CRA consulting firm to assist Security First in preparing and implementing a CRA plan; and the offering of specific banking products and services directed to its assessment area, including low- and moderate-income areas.11

Commenter questions whether the criteria adopted in the CRA regulations of the federal financial supervisory agencies for defining the assessment area of an insured depository institution are adequate and whether compliance by Old Security First with the regulations adopted by the institution's appropriate supervisory authority for defining an assessment area is sufficient in light of the Internet banking activities proposed by Old Security First.12

The CRA requires the federal banking agencies, in reviewing certain applications, to take account of an institution's record of actual performance in helping to meet the credit needs of its community, including low- and moderate-income neighborhoods. That record includes compliance by Old Security First with the rules and requirements of its appropriate supervisory authority and that supervisor's on-site evaluation of the CRA performance record of Old Security First.

Old Security First has defined its assessment area in accordance with the requirements contained in regulations of the OTS that govern the CRA obligations and performance of Old Security First.13 The OTS has examined the CRA performance of Old Security First, including the adequacy of the assessment area definition adopted by Old Security First, and found it satisfactory. Security First, moreover, would continue to be subject to regular evaluations by its primary federal supervisor of its CRA performance record in its entire community, including low- and moderate-income neighborhoods.

The proper application of the CRA to the operations of a financial institution such as Security First, that operates primarily over the Internet, is subject to evaluation and review by the institution's appropriate supervisory authority as experience is gained regarding the actual success, geographic reach, and lending patterns of depository institutions conducting these activities. Commenter's concerns regarding the alleged difficulties for a financial institution operating over the Internet to serve low- and moderate-income individuals and communities, however, remain speculative at this time.14

Based on all the facts of record, the Board concludes that the CRA performance record of the depository institutions involved and the CRA plan submitted by Royal Bank lend weight toward approval of the proposal.

In connection with its review of the public interest factors under section 4(c)(8) of the BHC Act, the Board also has carefully considered the financial and managerial resources of Royal Bank and its subsidiaries and Security First and the effect the transaction would have on such resources in light of all the facts of record.15 The Board has reviewed, among other things, confidential reports of examination and other supervisory information received from the appropriate supervisory authorities for the organizations. The Board notes that Royal Bank's capital ratios meet applicable risk-based capital standards under the Basle Accord and are equivalent to the capital levels that would be required for a U. S. banking organization. Royal Bank also has significant financial and managerial resources that may be used to support and develop the activities of Security First. Based on all the facts of record, the Board concludes that the financial and managerial resources of the organizations involved in the proposal lend weight toward approval of the proposal.16

The record indicates that consummation of the proposal would result in benefits to consumers and businesses. The proposal would increase the financial and technological resources available to Security First, thereby enabling it to enhance the financial products and services it offers, which would provide greater convenience to consumers and businesses that desire to conduct banking transactions over the Internet. Additionally, there are public benefits to be derived from permitting capital markets to operate so that bank holding companies may make potentially profitable investments in nonbanking companies when, as in this case, those investments are consistent with the relevant considerations under the BHC Act, and from permitting banking organizations to allocate their resources in the manner they believe is most efficient. Based on all the facts of record, the Board has determined that consummation of the proposal can reasonably be expected to produce public benefits that would outweigh any likely adverse effects under the proper incident to banking standard of section 4(c)(8) of the BHC Act.

Based on the foregoing and all the facts of record, the Board has determined that the notice should be, and hereby is, approved.17 The Board's approval of the proposal is specifically conditioned on compliance by Royal Bank with the commitments made in connection with the notice. The Board's determination also is subject to all the conditions in Regulation Y, including those in sections 225.7 and 225.25(c) (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 holding company or any of its subsidiaries as the Board finds necessary to assure compliance with, or to prevent evasion of, the provisions and purposes of the BHC Act and the Board's regulations and orders issued thereunder. The commitments and conditions relied on by the Board in reaching this decision shall be deemed to be conditions imposed in writing by the Board in connection with its findings and decision, and, as such, may be enforced in proceedings under applicable law.

The transaction 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 the Federal Reserve Bank of New York, acting pursuant to delegated authority.

By order of the Board of Governors,18 effective August 3, 1998.

(signed) Robert deV. Frierson

Robert deV. Frierson

Associate Secretary of the Board


1 Royal Bank, through is wholly owned subsidiaries, RBC Holdings (USA) Inc., New York, New York, and RBC Holdings (Delaware) Inc., Wilmington, Delaware, would acquire Security First from Security First Technologies, Inc., Atlanta, Georgia. Security First is a federally chartered savings bank in formation that would acquire certain assets and liabilities of Security First Network Bank, Atlanta, Georgia ("Old Security First"), an insured depository institution that provides electronic banking services primarily over the Internet. See Cardinal Bancshares, Inc., 82 Federal Reserve Bulletin 674 (1996) ("Cardinal").

2 Asset and ranking data are as of December 31, 1997, and are based on exchange rates then applicable.

3 See The Royal Bank of Canada, 77 Federal Reserve Bulletin 272 (1991); Royal Bank of Canada, 83 Federal Reserve Bulletin 135 (1997); Bank of Montreal, 83 Federal Reserve Bulletin 127 (1997).

4 12 U.S.C. � 1843(c)(8).

5 12 C.F.R. 225.28(b)(4).

6 See Cardinal.

7 12 U.S.C. � 1843(c)(8).

8 See Banc One Corporation, 83 Federal Reserve Bulletin 602 (1997).

9 The Statement of the Federal Financial Supervisory Agencies Regarding the Community Reinvestment Act provides that a CRA examination is an important and often controlling factor in the consideration of an institution's CRA record and that reports of these examinations will be given great weight in the applications process. 54 Federal Register 13,742 and 13,745 (1989).

10 Commenter argues that, in the absence of an established record of performance by Royal Bank under the CRA, the Board should perform an extensive investigation of Royal Bank's proposed CRA plan before taking any action on the proposal. In keeping with the Board's precedent and the BHC Act and CRA, the Board has carefully reviewed and considered the actual CRA performance record of the relevant insured depository institution in this case and has also carefully considered the proposals by Royal Bank to adopt and improve the CRA policies and programs of that insured depository institution. See The Statement of the Federal Financial Supervisory Agencies Regarding the Community Reinvestment Act; see also The Toronto-Dominion Bank, 82 Federal Reserve Bulletin 1052 (1996).

11 The proposed CRA plan indicates that the products and services to be offered would include low-cost banking products and services for individuals, credit counseling, and loans to and investments in affordable housing projects.

12 Commenter asserts that the designation by Old Security First of the Atlanta Metropolitan Statistical Area ("MSA") assessment area under the CRA is inappropriate in view of Old Security First's emphasis on soliciting deposits nationwide over the Internet, and that Old Security First's marketing efforts directed to Internet users disproportionately exclude low- and moderate-income individuals. Commenter also asserts that the Miami MSA should be included in Security First's assessment area because Security First's main office would be located there. As part of the proposal, however, Royal Bank intends to relocate the main office to Atlanta approximately 30 days after acquiring Security First and to close the Miami office.

13 See 12 C.F.R. 563e.41(c).

14 In April 1997, the OTS published notice of proposed rulemaking concerning all aspects of electronic banking, including the application of the CRA to those activities. See 62 Federal Register 15,626 (April 2, 1997). Several public comments were received by the OTS concerning the CRA. The proposed rulemaking remains open. Commenter also requests that the Board postpone taking any action on the proposal until the OTS has determined whether to require Royal Bank to submit a specific CRA plan or set of CRA commitments in connection with its review of the proposal and to permit public comment on Royal Bank's CRA plan. The Board is required under its procedures, however, to take action on the proposal within a specified period of time. See 12 C.F.R. 225.24(d). The Board has provided a period for public comment in this case of 34 days, and the Secretary of the Board has extended the time for receiving comments on the proposal from Commenter an additional 22 days. Based on all the facts of record, the Board has determined that no additional delay is warranted in this case.

15 See 12 C.F.R. 225.26.

16 Commenter also alleges that Royal Bank's proposal to establish the main office of Security First in Miami, Florida, and then to relocate the main office to Atlanta, Georgia, is intended to evade Georgia's charter age requirements. See Ga. Code Ann. � 7-1-608(a)(2) (Michie 1998). Georgia law permits Royal Bank to acquire Security First's office in Atlanta as a branch of a thrift with a home office in another state, and to relocate its main office to Atlanta. Georgia banking authorities have advised the Board that they have reviewed and do not object to the proposal.

17 Commenter has requested that the Board hold a public meeting or hearing on the proposal to obtain additional factual evidence concerning the adequacy of the CRA plan submitted by Royal Bank for Security First to address the convenience and needs of the community to be served. The Board's Rules of Procedure provide for a hearing on notices under section 4 of the BHC Act to acquire a savings association only if there are disputed issues of material fact that cannot be resolved in some other manner. See 12 C.F.R. 225.25(a)(2). The Board also may, in its discretion, hold a public meeting or hearing if a hearing is necessary to clarify factual issues related to the proposal and to provide an opportunity for testimony, if appropriate. See 12 C.F.R. 225.16(e). After a careful review of all the facts of record, the Board has concluded that Commenter's contentions amount to a dispute concerning the weight that should be accorded to, and the conclusions that the Board should draw from, the facts of record, but do not identify disputed issues of fact that are material to the Board's decision. The Board also notes that interested parties have had an ample opportunity to present their views, and Commenter has submitted substantial written comments that have been considered by the Board. Commenter's request fails to demonstrate why a written presentation would not suffice and to summarize the evidence that would be presented at a meeting or hearing. For these reasons, and based on all the facts of record, the Board has determined that a public meeting or hearing is not required or warranted in this case. Accordingly, the request for a public meeting or hearing on the proposal is hereby denied.

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

Return to topReturn to top

1998 Orders on banking applications

Home | News and events
Last update: August 4, 1998, 4:00 PM