Mr. Richard J. McCullen
NBD Bank
611 Woodward Avenue
P.O. Box 331789
Detroit, Michigan 48232-7789

Dear Mr. McCullen:

This is in response to your letter to the Federal Reserve Bank of Chicago regarding the ability of the bank subsidiaries of First Chicago NBD Corporation ("FCNBD") to purchase securities underwritten by a syndicate in which an affiliate of the FCNBD bank is a member, pursuant to section 23B of the Federal Reserve Act, 12 U.S.C. � 371c-1.

According to your letter, the FCNBD banks, subject to other applicable State and Federal law and the terms of the governing instrument, propose to purchase securities from a third party member of an underwriting syndicate of which the affiliate is a member. These securities would be investment grade or better. Your letter also states that if the affiliate's participation in the syndicate is 10 percent or less, then the banks will purchase the securities without any further restrictions; if the affiliate's participation is greater than 10 percent, the banks will maintain documentation regarding the price and appropriateness of the investment.

Section 23B prohibits a bank "whether acting as principal or fiduciary," from knowingly purchasing or otherwise acquiring, during the existence of any underwriting or selling syndicate, any security if a principal underwriter of that security is an affiliate of such bank. 12�U.S.C.���371c-1(b)(1)(B). This provision does not apply, however, if "the purchase or acquisition of such securities has been approved, before such securities are initially offered for sale to the public, by a majority of the directors of the bank who are not officers or employees of the bank or any affiliate thereof." 12 U.S.C. ��371c-1(b)(2). Section�23B defines principal underwriter as "any underwriter who in connection with a primary distribution of securities:

(i)  is in privity of contract with the issuer or an affiliated person of the
issuer;

(ii)  acting alone or in concert with one or more other persons, initiates or directs the formation of an underwriter syndicate; or

(iii)  is allowed a rate of gross commission, spread, or other profit greater than the rate allowed another underwriter participating in the distribution. 12 U.S.C. � 371c-1(b)(3)(B).

Section 23B does not draw a distinction between a syndicate member with a less than 10 percent interest or a member with a larger interest. If the affiliate meets the statutory definition of principal underwriter, the bank must follow the safeguards outlined in section�23B, including a vote by the majority of directors who are not officers or employees of an affiliate. Section 23B also requires that the securities purchased during underwriting be purchased at a price that is at least as favorable to the bank as those prevailing at the time for comparable transactions with unaffiliated companies.

If you have any further questions, please contact Ms. Pamela G. Nardolilli of the Board's Legal Division, at 202/452-3289.

Sincerely,

(signed) J. Virgil Mattingly

J. Virgil Mattingly

cc:     Don Vinnedge, Federal Reserve Board,
         Joan Fischman, FRB Chicago
         Lisa Lintechum, OCC