Federal Funds Rate Target and Discount Rate Raised by 25 Basis Points
Effective March 11; Comments Requested by May 12
March 27, 2000
Circular No. 11235

To All State Member Banks, Bank Holding Companies and Section 20 Subsidiaries, and Branches and Agencies of Foreign Banks, in the Second Federal Reserve District:

The Board of Governors of the Federal Reserve System has adopted several interim amendments to its Regulations H and Y, effective March 11, 2000, to implement provisions of the Gramm-Leach-Bliley Act, also effective March 11. The Board has also requested public comments on the interim rules by May 12, 2000. The following descriptions are based on the Board's announcements:

Financial Activities Permissible for Financial Holding Companies

The Federal Reserve Board approved an interim rule, effective March 11, 2000, listing financial activities permissible for financial holding companies under the Gramm-Leach-Bliley Act.

The list also will help identify companies subject to the provisions of the Act governing the privacy of customer information. The privacy provisions apply to a company doing a financial business regardless of whether the company is affiliated with a bank.

This interim rule, which amends Regulation Y (Bank Holding Companies), establishes procedures for financial holding companies to engage in the listed financial activities. It also establishes procedures by which a party may ask the Board to list additional activities as financial in nature or as incidental to or complementary to a financial activity.

Underwriting, Dealing in, and Making a Market in Securities

The Federal Reserve Board approved an interim rule amending Regulation Y, effective March 11, 2000, that would impose -- on financial holding companies authorized under the Gramm-Leach-Bliley Act that have securities affiliates -- 2 of 8 operating standards that currently apply to bank holding companies that control so-called section 20 affiliates. These two standards (1) require that intra-day extensions of credit to a securities firm from an affiliated bank or thrift or U.S. branch or agency of a foreign bank be on market terms consistent with section 23B of the Federal Reserve Act, and (2) apply the limitations of sections 23A and 23B of the Federal Reserve Act to certain covered transactions between a U.S. branch or agency of a foreign bank and a U.S. securities affiliate.

All 8 of the operating standards, as well as the Board's current 25 percent revenue test, will continue to apply to bank holding companies that control section 20 subsidiaries pursuant to section 4(c)(8) of the Bank Holding Company Act

Authorizing State Member Banks to Establish Financial Subsidiaries

The Federal Reserve Board approved an interim rule amending Regulation H (State Member Banks), effective March 11, 2000, permitting qualifying state member banks to establish financial subsidiaries and thereby engage in activities that have been determined to be financial in nature or incidental to financial activities. The interim rule establishes a streamlined notice procedure for state member banks that wish to acquire control of or an interest in a financial subsidiary. The Board's rule parallels that adopted by the Comptroller of the Currency for financial subsidiaries of national banks.

The interim rules are available online, as published in the Federal Register. (The rules relating to Regulation Y are in the Federal Register of March 17, pages 14433 to 14442 (pdf - 153kb) PDF; the rule relating to Regulation H is in the Federal Register of March 20, pages 14810 to 14816 (pdf - 145kb). PDF) Comments should be submitted to the Board, as specified in the notices, by May 12, 2000.