10 Percent Revenue Limit on Bank-Ineligible Activities of Subsidiaries of Bank Holding Companies Engaged in Underwriting and Dealing in Securities

Résumé

In 1987 and 1989 the Board authorized bank holding companies to establish separate nonbank subsidiaries (``section 20 subsidiaries'') to underwrite and deal in securities that a bank may not underwrite and deal in directly (``ineligible securities''). In order to ensure compliance with section 20 of the Glass-Steagall Act (12 U.S.C. 377), the Board required that the amount of revenue a section 20 subsidiary derives from ineligible securities underwriting and dealing activities may not exceed 10 percent of the total revenue of the subsidiary. Section 20 prohibits a member bank of the Federal Reserve System from being affiliated with a company that is ``engaged principally'' in underwriting and dealing in securities. In January 1993, after notice and the opportunity for public comment, the Board authorized section 20 subsidiaries to use an alternative indexed method to compute compliance with the 10 percent revenue limitation to account for unusual changes in the level and structure of interest rates since 1989, when the 10 percent limit was adopted. When the Board adopted the indexed revenue test, the Board deferred adoption of another alternative test for the 10 percent limit that