Robert L. Tortoriello, Esq.
Cleary, Gottlieb, Steen & Hamilton
One Liberty Plaza
New York, New York 10006-1470

Dear Mr. Tortoriello:

This is in response to your letter dated June 3, 1998, on behalf of People's Bank, Bridgeport, Connecticut ("Savings Bank"), in which you request confirmation of your view that it is permissible under the BHC Act for Savings Bank to operate R.C. Knox and Company, Inc., Hartford, Connecticut ("Agency"), a company that sells insurance and fixed and variable annuities, as a subsidiary of Savings Bank. You have indicated that Savings Bank is a "qualified savings bank" as defined in section 2(m) of the Bank Holding Company Act (12 U.S.C. � 1841(m)) ("BHC Act"),¹ and that Savings Bank's holding company, People's Mutual Holdings, Bridgeport, Connecticut, is a registered bank holding company and a "savings bank holding company" as defined in section 2(l) of the BHC Act (12 U.S.C. � 1841(l)).²

The question you have raised involves the ability of Agency, as a subsidiary of Savings Bank, to engage in insurance agency activities under section 3(f) of the BHC Act. Section 3(f)(1) of the BHC Act provides that, notwithstanding any other provision of the BHC Act (other than sections 3(f)(2) and 3(f)(3)), "any qualified savings bank which is a subsidiary of a bank holding company may engage, directly or through a subsidiary, in any activity in which such savings bank may engage (as a State chartered savings bank) pursuant to express, incidental, or implied powers under any statute or regulation, or under any judicial interpretation of any law, of the State in which such savings bank is located."³ Section 3(f)(2) of the BHC Act states that, except as provided in section 3(f)(3), "any insurance activities of any qualified savings bank which is a subsidiary of a bank holding company shall be limited to insurance activities allowed under section 4(c)(8) [of the BHC Act]."⁴ We understand that Connecticut law authorizes Savings Bank, as a State chartered savings bank, to conduct the business of Agency directly or through a subsidiary.⁵

You argue that the limitation set forth in section 3(f)(2) on the ability of a qualified savings bank to engage in insurance activities applies only to the direct activities of the savings bank and does not apply to insurance activities conducted by a subsidiary of the savings bank. Section 3(f)(1) permits qualified savings banks to engage "directly or through a subsidiary" in state-authorized activities. In contrast, section 3(f)(2) explicitly prohibits a qualified savings bank from engaging in insurance activities, but makes no reference to activities conducted through a subsidiary of the savings bank. You contend that Congress's decision to use the phrase "directly or through a subsidiary" in the enabling language in section 3(f)(1) but not to use a similar phrase in the prohibitory language in section 3(f)(2) suggests a deliberate Congressional choice not to restrict the insurance activities of the subsidiaries of qualified savings banks.

After review of the provisions of section 3(f) and consideration of the facts of this case, we do not propose to recommend that the Board take action in the event you proceed as indicated. In reaching this view, we note that the Board has determined, and the courts have affirmed, that section 4 of the BHC Act does not apply to activities performed directly in a bank.⁶ The reading of section 3(f)(2) described in the preceding paragraph would allow qualified savings banks to engage through a subsidiary in the same activities permitted to non-qualified savings banks and other state banks under state law.

Our view on this matter is based on the facts and circumstances of this case and does not apply to any other case; nor do we render any opinion on the permissibility of Savings Bank conducting insurance activities directly.⁷ Any changes to the proposal, the surrounding circumstances, or the facts relied on by the Legal Division should be presented to the Board as soon as possible, and may require revision of this determination.

Sincerely,

(Signed) J. Virgil Mattingly

J. Virgil Mattingly

cc: Federal Reserve Bank of New York

1. Section 2(m) of the BHC Act defines the term "qualified savings bank" as a state-chartered savings bank that was organized on or before March 5, 1987. Return to text

2. Section 2(l) of the BHC Act defines the term "savings bank holding company" as any company that controls one or more qualified savings banks if the aggregate total assets of such savings banks constitute, upon formation of the holding company and at all times thereafter, at least 70 percent of the total assets of such company. Return to text

3. 12 U.S.C. � 1842(f)(1) (emphasis added).Return to text

4. 12 U.S.C. � 1842(f)(2). Section 3(f)(3) permits certain qualified savings banks to engage in the sale or underwriting of savings bank life insurance after they become a subsidiary of a bank holding company. See 12 U.S.C. � 1842(f)(3).Return to text

5. See 1997 Conn. Acts 317 (Reg. Sess.) � 1(a)(38).Return to text

6. See Merchants National Corporation, 75 Federal Reserve Bulletin 388 (1989), aff'd, Independent Insurance Agents of America, et al. v. Board, 890 F.2d 1275 (2d Cir. 1989), cert. denied, 498 U.S. 810 (1990).Return to text

7. This determination also should not be construed as an interpretation of section 4 of the BHC Act (12 U.S.C. � 1843) or the Board's Regulation Y (12 CFR 225.22(e)(2)(ii)). Because section 3(f)(1) of the BHC Act authorizes this transaction "notwithstanding any other provision of [the BHC] Act," this letter does not address the transaction's permissibility under section 4 of the BHC Act or under section 225.22(e)(2)(ii) of Regulation Y. See 12 U.S.C. � 1842(f)(1).Return to text