(b) Section 23A imposes limitations (in terms of security and amount) on a federally insured bank's loans to and investments in its affiliates. The principal purpose of section 23A is to safeguard the resources of a bank against misuse for the benefit of organizations under common control with the bank. It was designed to prevent a bank from risking too large an amount in affiliated enterprises and to assure that extensions of credit to affiliates will be repaid-out of marketable collateral, if necessary.

(c) Since 1968 the Board has permitted member banks to establish and own operations subsidiaries—that is, organizations designed to serve, in effect, as separately incorporated departments of the bank, performing, at locations at which the bank is authorized to engage in business, functions that the bank is empowered to perform directly (12 CFR 250.141). Since an operations subsidiary is in effect a part of, and subject to the same restrictions as, its parent bank, there appears to be no reason to limit transactions between the bank and such subsidiary any more than transactions between departments of a bank.

(d) Accordingly, the Board has conIcluded that a credit transaction by a member State bank with its operations subsidiary (the authority for which is based on the 1968 ruling) is not a "loan or *** extension of credit" of the kind intended to be restricted and regulated by section 23A and is, therefore, outside the purview of that section.

[35 FR 10201, June 23, 1970]

§ 250.250 Applicability of section 23A of the Federal Reserve Act to a member State bank's purchase of, or participation in, a loan originated by a mortgage banking affiliate.

(a) A question has been raised as to whether a member bank's purchase, without recourse, and at face value, of any mortgage note, or participation therein, from a mortgage banking subsidiary of its parent bank holding company at the inception of the underlying mortgage loan involves a "loan" or "extension of credit" from the member bank to the affiliate within the meaning of section 23A of the Fed

eral Reserve Act (12 U.S.C. 371c). I the given circumstances, the affiliat originated the mortgage loans a premises other than an office of th member bank and hence was not company furnishing services to or per forming services for the holding com pany or its banking subsidiaries with.: the meaning of section 4(c)(1)(C) & the Bank Holding Company Act (1 U.S.C. 1843(c)(1)(C)). Loans or exter sions of credit to the affiliate were therefore not entitled to exemption from the provisions of section 23A t virtue of subsection (1) of the fina paragraph thereof.

(b) Paragraph 4 of section 23A pro vides that the term "extension o credit" shall be deemed to "include the discount of promissory notes, bil of exchange, conditional sales cor tracts, or similar paper, whether with or without recourse, excepting the ac quisition of such paper by a member bank from another bank without re course. In previously interpreting the statutory provision from which the provision is derived (Section 6 of th Bank Holding Company Act of 195 repealed July 1, 1966), the Board con cluded that "discount" in the contex of the statute meant "purchase" and that the purchase of notes, bills of ex change, conditional sales contracts or similar paper from an affiliate wa subject to the prohibitions of the stat ute. (1958 Federal Reserve Bullet.: 260.) Further, the Board notes tha the definition in section 23A is illus trative rather than exclusive. The Board believes that the purposes of section 23A justify a broad construc tion of the definition of “extension of credit" to include certain purchases of obligations, even though the pur chases are not made at a discour from face value. A bank's financing of the working capital needs of a mortgage banking affiliate may occur through outright purchases of obligations, and the types of abuses with which section 23A is concerned are likewise possible in such circum stances, since such transactions between affiliates could result in an undue risk to the financial condition of the purchasing bank.

(c) The Board is of the opinion that the purchase by a member State bank

ge note, or participation n a mortgage banking afI involve a loan or extenit to the affiliate if the ither made, or committed e, the loan or extension of iced by the note prior to en the member bank first self, by commitment or o purchase the loan or a 1 therein. However, there loan or extension of credit iber bank to its mortgage iliate if the member bank's t to purchase the loan, or a n therein, is obtained by e within the context of a ansaction, or series of proactions, in anticipation of e's commitment to make ;), and is based upon the pendent evaluation of the hiness of the mortgagor(s). latter circumstances, the nk would be taking advann investment opportunity n being impelled by any imentive to alleviate working ds of the affiliate that are tributable to excessive outommitments.

Board cautions, however, ald regard a blanket advance nt by a member State bank e from its mortgage banking stipulated amount of loans, ount thereof exceeding deit lines of the affiliate, that eference to specific proposed ns, as involving an unsound -ractice, unless the commitonditioned upon compliance ade thereunder with the res of section 23A. It would e to condition such a compon the bank's ultimate apthe credit standing of the ortgagors. That blanket comwould have the inherent in the context of an affiliate ip, to cause the bank to nd credit judgment concerndividual loans involved when ate was in need of bank fithereby resulting in an inaprisk to the soundness of the

and applies 12 U.S.C. 371c) 75, Aug. 13, 1974]

The Board has received numerous inquiries from member banks relating to the repeal of the bank on ownership of gold by United States citizens. Listed below are questions and answers which affect member banks and relate to the responsibilities of the Federal Reserve System.

(a) May gold in the form of coins or bullion be counted as vault cash in order to satisfy reserve requirements? No. Section 19(c) of the Federal Reserve Act requires that reserve balances be satisfied either by a balance maintained at the Federal Reserve Bank or by vault cash, consisting of United States currency and coin. Gold in bullion form is not United States currency. Since the bullion value of United States gold coins far exceeds their face value, member banks would not in practice distribute them over the counter at face value to satisfy customer demands.

(b) Will the Federal Reserve Banks perform services for member banks with respect to gold, such a safekeeping or assaying? No.

(c) Will a Federal Reserve Bank accept gold as collateral for an advance to a member bank under section 10(b) of the Federal Reserve Act? No. [39 FR 45254, Dec. 31, 1974]

BANK SERVICE ARRANGEMENTS

§ 250.300 Kinds of bank servicers subject to Board examination under the Bank Service Corporation Act.

Summary. The performance of bank services for State member banks is subject to the Board's regulation and examination, regardless of the nature of the bank servicer, including servicers that are national banks; State nonmember insured banks; non-profit, no-stock credit card servicing organizations; and servicing subsidiaries of bank holding companies.

Text. (a) Since the enactment of the Bank Service Corporation Act (the "Act") (12 U.S.C. 1861-65), the Board has on several occasions considered whether performance of “bank services" (as that term is defined in section 1(b) of the Act) for State member

banks is subject to regulation and examination by the Board under section 5 of the Act if (1) the bank servicer is not a “bank service corporation" (as that term is defined in the Act), or (2) the bank servicer is a bank itself. In each instance, based on the reasoning set forth below, the Board expressed the view that section 5 of the Act applied to any organization that performed bank services for State member banks, including national banks; another State member bank; State nonmember insured banks; servicing subsidiaries of bank holding companies; and non-profit, no stock credit card servicing organizations.

(b) The Senate Committee on Banking and Currency stated with regard to section 5 of the Act, as enacted in 1962, that the Federal supervisory agencies "must be able to examine all of the banks' records, and they must be able to exercise proper supervision over all the banks' activities, whether performed by the banks' employees on their premises or by anyone else on or off the banks' premises. This examination and this supervision cannot be frustrated by a transfer of the banks' records to some other organization or by having some other organization carry out all or part of the banks' functions." (S. Rep. No. 2105, 87th Cong. 3 (1962)). Similarly, the Committee on Banking and Currency of the House of Representatives stated that "it would obviously be unwise to permit banks to avoid the examination and supervision of vital banking functions by the simple expedient of farming out such functions." (H.R. Rep. No. 2062, 87th Cong. 3 (1962)).

(c) Section 5 of the Act is not limited by its terms to "bank service corporations" as defined in the Act; nor, in the Board's opinion based on the legislative history of the Act, should such a limitation be implied. The Board concludes that the performance of bank services for State member banks by organizations that are not bank service corporations is also subject to Board regulation and examination.

(d) If the bank servicer is a national bank or a State nonmember insured bank, its performance of bank services for State member banks is subject to Board regulation and examination, de

spite the fact that the servicer is s ject primarily to regulation and exam nation by one of the other Feder banking agencies. By the same toke the performance of bank services by State member bank for a nation bank or State nonmember insur bank is subject to regulation and amination by the Comptroller of Currency or the Federal Deposit surance Corporation, respectively. T purpose of section 5 of the Act is make certain that the appropria Federal banking agency will be able fectively to exercise its responsibilit with respect to a bank subject prima ily to its supervision.

(e) It is important to note that scope of the Board's regulation an examination under section 5 of th Act does not extend to all affairs the bank servicer, but only to th "bank services" performed for a Stat member bank and only to the sam extent as if the services were bein performed by the State member ban itself on its own premises.

[44 FR 12969, Mar. 9, 1979]

§ 250.301 Scope of investment authorit and notification requirement under th Bank Service Corporation Act. Summary. (a) The authority of Sta member banks under the Bank Servis Corporation Act to invest in bank ser ice corporations is limited to invest ments in corporations that perfcr "bank services" solely.

(b) A State member bank is requir by the Act to notify the Board only the performance of "bank services for it.

(c) "Bank services" will not usua be regarded as including legal, advis ry, and administrative services, such a transportation or guard services.

Text (a) Section 2(a) of the Bar Service Corporation Act (12 US 1861-65) provides that "no limitat or prohibition otherwise imposed any provision of Federal law exclusi ly relating to banks shall prevent ar two or more banks from investing 5 more than 10 per centum of the pa in and unimpaired capital and un... paired surplus of each of them in bank service corporation.” This 10 pet cent investment ceiling applies t

other advances of funds, as purchase of stock. The Act, does not authorize a State vest in a bank service corpohe bank is not permitted to r the applicable State law. k service corporation” is desection 1(c) of the Act to orporation organized to per<services for two or more h of which owns part of the ck of such corporation, and le of which is subject to ex

by a Federal supervisory Section 4 of the Act states ank service corporation may any activity other than the ice of bank services for hus, the investment authori. by section 2(a) is limited to ›ns that are engaged solely in sion of "bank services" to that term is defined in the

ddition to its grant of investhority, the Act also requires mber banks to notify the hin 30 days of the execution tract for "bank services" or l provision of such services, r occurs first. Moreover, the orizes the Board to regulate mine the performance of vices." Thus, the scope of the ification and examination rets also is limited to "bank

e term "bank services" is desection 1(b) of the Act to ervices such as check and deting and posting, computation ing of interest and other credharges, preparation and mailecks, statements, notices, and tems, or any other clerical, ping, accounting, statistical, or functions performed for a

aring importantly upon the of "bank services" is the folquotation from the Report of ate Committee on Banking and y: "The authority to examine ervise banks is broad and must ously exercised. At the same und discretion must be used. ave always employed others to y things for them, and they e to continue to do so, and the

bill is not intended to prevent this or to make it more difficult. For example, banks have employed lawyers to prepare trust and estate accounts and to prosecute judicial proceedings for the settlement of such accounts. Banks have employed accountants to prepare earnings statements and balance sheets. Banks have employed public relations and advertising firms. And banks have employed individuals or firms to perform all kinds of administrative activities, including armored car and other transportation services, guard services and, in many cases, other mechanical services needed to run the bank's buildings. It is not expected that the bank supervisory agencies would find it necessary to examine or regulate any of these agents or representatives of a bank, except under the most unusual circumstances. The authority is intended to be limited to banking functions as such." (S. Rep. No. 2105, 87th Cong. 3 (1962)).

(f) On the basis of the Act's definition of "bank services", the limitation contained in section 4 of the Act, and the preceding quotation from the Act's legislative history, it is apparent that the term "bank services" is essentially limited to clerical and similar services. For example, the term would not usually be regarded as including legal, advisory, and administrative services, such as transportation or guard services.

(g) Thus, State member banks generally may rely on the Act to justify investment only in a corporation that is engaged solely in performing one or more of the services contained in the definition of "bank services" in section 1(b), or a service similar to one of those services, and only if those services are provided solely to banks. Investment in a corporation providing any other services, such as the type of services described in the above quotation from the Act's legislative history, generally is not permitted on the basis of this Act, unless such services are legitimately incidental to the provision of "bank services" by that corporation.

(h) Since the notification required by section 5 of the Act, as amended, also is based on the provision of “bank services," such notification need only

be provided with regard to the provision of one or more of the services enumerated in section 1(b) of the Act or a service similar to one of those services.

[44 FR 12969, Mar. 9, 1979]

§ 250.302 Applicability of Bank Service Corporation Act to bank credit card service organization.

Summary. Although a non-profit, no-stock service organization in which no bank has made an investment is not a "bank service corporation” as defined in the Bank Service Corporation Act, that organization's credit card servicing activities are "bank services" as defined in the Act and thus subject to the notification requirement of section 5 of the Act.

Text. (a) The Board of Governors has considered whether the Bank Service Corporation Act (12 U.S.C. 1861-65), is applicable where a bank credit card plan of a State member bank and other banks used the facilities of a non-profit, no-stock service organization.

(b) The functions of the service organization include the following: (1) Performing cardholder accounting for participating banks; (2) developing information concerning each credit card and holder, including such holder's current balance owing to the card issuing bank and the amount of such balance that is delinquent; (3) assisting in procedures relating to the presentation and settlement of drafts and credit memoranda; (4) developing procedures relating to credit card security control; (5) upon telephonic request, advising merchants and participating banks respecting credit authorizations above certain specified limits; and (6) compiling lists of participating merchants.

(c) The Board expressed the view that because the service organization has no stock and the State member bank does not otherwise "invest" therein by "the making of a loan, or otherwise, except a payment for rent earned, goods sold and delivered, or services rendered prior to the making of such payment" (section 1(d) of the Act), the service organization is not a "bank service corporation" within the meaning of section 1(c) of the Act.

Rese

Bo

ee

261.4 Records available to the public upate request.

261.5 Deferment of availability of certai information.

261.6 Exemptions from disclosure. 261.7 Subpoenas.

AUTHORITY: 5 U.S.C. 552.

SOURCE: 32 FR 9516, July 1, 1967, unjest otherwise noted.

§ 261.1 Basis and scope.

This part is issued by the Board of Governors of the Federal Reserve System (the “Board”) pursuant to the requirement of section 552 of Title 5. of the United States Code that every Federal agency shall publish in the. FEDERAL REGISTER, for the guidance of the public, descriptions of the estab lished places at which, the officers from whom, and the methods where by, the public may obtain information. make submittals or requests, or obtain decisions.

§ 261.2 Definitions.

(a) Information of the Board. For purposes of this part, the term "infor mation of the Board" means all information coming into the possession of the Board or of any member thereof. or of any Federal Reserve Bank, or of any officer, employee, or agent of the Board or of any Federal Reserve Bank, in the performance of functions for or on behalf of the Board, including functions delegated by the Board pursuant to Part 265 of this chapter.