Book Reviews

• Published date: 01 December 1975
• Date: 01 December 1975
• DOI: 10.1177/0003603X7502000410
• Author: Donald R. Fraser,Peter S. Rose
• Subject Matter: Book Reviews

BOOK

REVIEWS

Cleveland

'A.

Christophe, Competition in Financial Services,

New York:

First

National City Bank (1974) 55 pp.,

Free

The 1970 amendments to the Bank Holding Company Act

altered significantly the ground rules governing the expansion

of commercial banks into nonbanking activities. The one-bank

holding company was brought under the jurisdiction of the

Federal

Reserve Board.

In

addition, the permissible range of

diversification

for

registered bank holding companies was

broadened to include businesses of a financial character closely

related to banking.

At

the same time, the new law did not

place limitations on the geographic areas within which com-

mercial banks through their holding companies are permitted

to operate. While banking

offices

must still be confined to a

single state, nonbanking subsidiaries of a bank holding com-

pany

may be established without

regard

to geographical re-

strictions.

Under

Section 4(c) (8) of the 1970 amendments, the Board

of Governors of the

Federal

Reserve System has the authority

to determine those nonbanking business activities

that

are

per-

missible to bank holding companies. The specific activities

must be "so closely related to banking

...

as to be a

proper

incident thereto."

In

making

its

decision on specific activities,

the

Board

was directed to determine whether each activity

could "reasonably be expected to produce benefits to the public

...

that

outweigh possible adverse effects."

In

effect, this im-

poses two tests on the future expansion of bank holding com-

panies: (1) the "closely related" test,

or

requirement

that

businesses purchased or established anew by bank holding

companies be similar to traditional banking functions, such as

lending or accepting deposits; and (2) the public benefits test,

which requires

that

there be demonstrable gains in efficiency,

lower prices charged, or other benefits without an adverse ef-

fect on competition.

The Board has moved rapidly to implement these new

amendments.

It

has, thus far, approved the following activi-

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