Show BUSINESS and the STOCK MARKET by BABSON'S REPORTS INC Copyright 1971 2971 ONE BANK HOLDING COMPANIES After more than two years of controversy controversy contro contro- versy the Congress has passed and the President has signed an nn amendment to the Bank Holding Company Act of 1956 that regulates one one bank bank holding compan compan- ies tes Prior to this legislation one-bank one holding companies were not limited as ns to what non-banking non activities they could enter although the banking subsidiaries sub were regulated as far as banking banking bank bank- ing functions were concerned Most did not abuse this privilege as diversification diversification cation occurred primarily in financially financial financial- ly related fields such as mortgage companies companies com com- small loans and data processing processing processing process process- ing companies Nevertheless it was decided that this loophole should be closed been because use of acquisition acquisition ac nc- ac- ac overtones by conglomerates the increased competition between banks which resulted in their seeking new newfields newfields newfields fields of endeavor and the rapid growth in the number of one-bank one holding com com- panics For example in 1966 there were only banks controlled by one bank holding companies and these represented represent represent- ed less than five per cent of total bank deposits By the end of 1968 however one-bank one holding companies were in existence or being formed which represented represented represented more than 27 per cent of the industry's industry's in in- total deposits Some Same Break Up Anticipated Because of this law some one bank holding companies which were in operation operation oper oper- prior to June 30 1968 the grandfather grandfather grand grand- father clause data may be required to divest themselves of their non-banking non activities By the same token some companies whose prime functions are not banking may choose to spin off their banking operation The Federal Reserve Board has two years to study those holding companies that own banks with assets of over 60 million and determine what action should be taken Smaller holding companies may also be forced to divest some of their related non-related activities activities ac nc ac- ac if the Federal Reserve Board finds that the banks' banks power to grant grantor or deny credit be influenced by a desire de sire to further the holding company's other interests The holding companies compan compan- ies have 10 years to divest themselves of these activities after they have been ordered to do so Feds Fed's Guidelines The Federal Reserve Board Doard played an nn important role in the making of this legislation as its opinions were sought at nt various stages particularly during the final draft The Act itself offers only guidelines and gives the Fed great grent latitude in drawing limitations as ns to what activities are to be permitted In making its decisions the important cons considerations con will probably be whether or not a firms firm's non non banking banking activities are closely related to banking and whether such activities would decrease competition competition or result in conflict of interest Since the final passage of this Act the Federal Reserve Board has set up its guidelines as to what it considers to be closely related banking activities These guidelines are quite general and changes change in il the future are more than like like- ly It may be several years before the final guidelines are established as it is anticipated the they will be tested in the courts by either a one bank holding company com corn pany that has been denied entrance to toa toa a certain activity or by a competitor who challenges challenge a banks bank's right to these activities Uniform Regulation Most Alost important accomplishment of this bill is the uniform regulation applied applied applied ap ap- plied to both the one-bank one holding company com corn pany and the multi multi bank bank holding com corn pany pang Because of this many one-bank one holding companies will likely become multi bank holding companies In New NewYork NewYork NewYork York City for example first National City Corporation has already announced plans to form a multi bank holding comp com pany with a n n new w branch in Suffolk County and Chase Manhattan Corporation Corporation Corpor Corpor- plans to form Chase Manhattan Bank of Long Island in Nassau County This trend will continue and should have havea haven a n beneficial impact on future bank earnings earn earn- ings I of I |