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ORDERS ISSUED UNDER BANK HOLDING COMPANY ACT.

Orders Issued Under Section 3 of the Bank Holding Company Act

Exchange Bancshares of Moore, Inc. Moore, Oklahoma

Order Approving the Formation of a Bank Holding Company

Exchange Bancshares of Moore, Inc. ("Applicant") has requested the Board's approval under section 3 of the Bank Holding Company Act ("BHC Act") (12 U.S.C. [sections] 1842) to become a bank holding company by acquiring all the outstanding voting shares of Exchange National Bank of Moore, Moore, Oklahoma ("Bank").

Notice of the proposal, affording interested persons an opportunity to submit comments, has been published (64 Federal Register 51,125 (1999)). The time for filing comments has expired, and the Board has considered the proposal and all comments received in light of the factors set forth in section 3 of the BHC Act. Applicant is a newly organized corporation formed for the purpose of acquiring control of Bank. Bank is the 167th largest depository institution in Oklahoma, controlling $37.4 million in deposits, representing less than 1 percent of total deposits in depository institutions in the state.(1)

As noted above, Applicant is a de novo corporation and does not-control another depository institution. Accordingly, based on all the facts of record, the Board concludes that consummation of the proposal would not have a significantly adverse effect on competition or on the concentration of banking resources in any relevant banking market, and that competitive considerations are consistent with approval.

The BHC Act also requires the Board to consider the financial and managerial resources and future prospects of the companies and banks involved in the proposal, the convenience and needs of the community to be served, and certain other supervisory factors. The Board has carefully considered these factors in light of all the facts of record, including comments from a Bank shareholder and director ("Protestant"), who contends that Applicant has undervalued his shares and, consequently, underestimated the cost of acquiring Bank.(2) The Board has also carefully reviewed all the financial and managerial information provided by Applicant and Protestant about the proposal, assessments of the financial resources of Bank contained in confidential reports of examination by the Office of the Comptroller of the Currency ("OCC"), and other supervisory information. Because the resulting organization has total assets of less than $150 million, the Board has reviewed the proposal in light of its Policy Statement on the Formation of Small Bank Holding Companies.(3)

The Board notes that Bank currently is well capitalized. In addition, under the proposal submitted by Applicant, the projected financial condition of Applicant and Bank and the projected debt-service obligation of Applicant are reasonable and consistent with the Board's guidelines. The Board also has reviewed Applicant's ability to service the debt if a court determines that a higher valuation of Protestant's shares is appropriate, and concludes that Applicant appears to have sufficient resources to service any increased debt likely to result from a larger payment to Protestant.

The Board has also reviewed relevant reports of examination of Bank and the managerial resources of Applicant's organizers, all of whom currently are officers and directors of Bank. Based on these and all the other facts of record, the Board concludes that financial and managerial considerations and future prospects of Applicant and Bank are consistent with approval.(4) Considerations relating to the convenience and needs of the community, including the performance record of Bank under the Community Reinvestment Act (12 U.S.C. [sections] 2901 et seq.), and the other supervisory factors the Board must consider under section 3 of the BHC Act, also are consistent with approval.

Based on the foregoing, and in light of all the facts of record, the Board has determined that the application should be, and hereby is, approved. The Board's approval is specifically conditioned on compliance by Applicant with all the commitments made in connection with the application. For the purpose of this action, the commitments and conditions relied on by the Board in reaching its decision are deemed to be conditions imposed in writing by the Board in connection with its findings and decision and, as such, may be enforced ill proceedings under applicable law.

The proposed transaction shall not be consummated before the fifteenth calendar day after the effective date of this order, or later than three months after the effective date of this order, unless such period is extended for good cause by the Board or by the Federal Reserve Bank of Kansas City, acting pursuant to delegated authority.

By order of the Board of Governors, effective December 8, 1999.

Voting for this action: Chairman Greenspan, Vice Chairman Ferguson, and Governors Kelley, Meyer, and Gramlich.

(1.) Deposit data are as of June 30, 1998. In this context, depository institutions include commercial banks, savings associations, and savings banks.

(2.) Under state law, a shareholder dissenting from a share acquisition is entitled to fair market value for the shareholder's shares, as determined by a state district court. See Okla. Stat. Ann. tit. 18, [sections] 1091 (West 1999). Protestant argues that Applicant has not established its ability to finance the proposal without adversely affecting the Bank's financial condition if fair market value of Protestant's shares exceeds the value assigned to the shares by Applicant's appraiser.

(3.) 12 C.F.R. 225, App. c.

(4.) Protestant maintains that actions taken by Applicant in connection with the proposal raise adverse managerial considerations. Protestant alleges that Applicant's principals are in violation of the bank's shareholder and voting agreements. These questions involve the interpretation of state law and, as such, are matters appropriately adjudicated by the courts. Protestant also argues that the voting agreement constitutes a voting trust that requires a notice to the OCC under the Change in Bank Control Act, 12 U.S.C. [sections] 1817(j), and that Applicant has failed to file a notice with the OCC. The Board provided the OCC with Protestant's comments, and the OCC did not file any comments with respect to this proposal.

ROBERT DEV. FRIERSON Associate Secretary of the Board

BB&T Corporation Winston-Salem, North Carolina

Order Approving the Acquisition of a Bank Holding Company

BB&T Corporation, Winston-Salem, North Carolina ("BB&T"), a bank holding company within the meaning of the Bank Holding Company Act ("BHC Act"), has requested the Board' s approval under section 3 of the BHC Act (12 U.S.C. [sections] 1842) to acquire Premier Bancshares, Inc., Atlanta, Georgia ("Premier"), and its four wholly owned subsidiary depository institutions: Premier Bank, Atlanta; Bank Atlanta, Decatur; Farmers and Merchants Bank, Summerville; and Milton National Bank, Roswell, all in Georgia.

Notice of the proposal, affording interested persons an opportunity to submit comments, has been published (64 Federal Register 55,291 (1999)). The time for filing comments has expired, and the Board has considered the proposal and all comments received in light of the factors set forth in section 3 of the BHC Act. BB&T, with total consolidated assets of $39.2 billion, operates depository institutions in North Carolina, Georgia, South Carolina, Maryland, Kentucky, Virginia, and West Virginia. BB&T is the eighth largest depository institution in Georgia, controlling deposits of $1.5 billion, representing approximately 1.7 percent of total deposits in insured depository institutions in the state ("state deposits").(1) Premier, with total consolidated assets of $1.5 billion, is the ninth largest depository institution in Georgia, controlling deposits of $1.3 billion, representing approximately 1.6 percent of state deposits. After consummation of the proposal, BB&T would remain the eighth largest depository institution in Georgia, controlling deposits of $2.8 billion, representing approximately 3.3 percent of state deposits.

Interstate Analysis

Section 3(d) of the BHC Act allows the Board to approve an application by a bank holding company to acquire control of a bank located in a state other than the home state of such bank holding company if certain conditions are met.(2) For purposes of the BHC Act, the home state of BB&T is North Carolina, and Premier's subsidiary banks are in Georgia.(3) All of the conditions for an interstate acquisition enumerated in section 3(d) of the BHC Act are met in this case.(4) In light of all the facts of record, the Board is permitted to approve the proposal under section 3(d) of the BHC Act.

Competitive Considerations

Section 3 of the BHC Act prohibits the Board from approving a proposal that would result in a monopoly or be in furtherance of an attempt to monopolize the business of banking. Section 3 also prohibits the Board from approving a proposal that would substantially lessen competition in any relevant banking market unless the anticompetitive effects of the proposal in that banking market are clearly outweighed in the public interest by the probable effect of the proposal in meeting the convenience and needs of the community to be served.(5)

BB&T and Premier compete directly in the Atlanta(6) and Milledgeville(7) banking markets, both in Georgia. The Board has carefully reviewed the competitive effects of the proposal in each of these banking markets in light of all the facts of record, including the number of competitors that would remain in the market, the share of total deposits in depository institutions in the market ("market deposits") controlled by the companies involved in the proposal,(8) the concentration level of market deposits in the market and the increase in this level as measured by the Herfindahl--Hirschman Index ("HHI") under the Department of Justice Merger Guidelines ("DOJ Guidelines"), and other characteristics of the markets.(9) Consummation of the proposal without divestitures would be consistent with Board precedent and the DOJ Guidelines in the Atlanta banking market.(10) This banking market would remain moderately concentrated after consummation of the proposal and numerous competitors would remain in the market.

Consummation of the proposal in the Milledgeville banking market would exceed the DOJ Guidelines. BB&T is the sixth largest depository institution in the market, controlling deposits of $45.7 million, representing approximately 8.9 percent of market deposits. Premier is the largest depository institution in the market, controlling deposits of $130.4 million, representing approximately 24 percent of market deposits. The HHI would increase 430 points to 2002, and the market would become highly concentrated. To mitigate the potential anticompetitive effects of the proposal in the Milledgeville banking market, BB&T has committed to divest one branch that currently controls approximately $19.3 million in deposits to a commercial banking organization that does not currently have a presence in the market or to a suitable in-market competitor.(11) After the proposed merger and divestiture, BB&T would become the largest depository institution in the banking market, controlling deposits of $158.2 million, representing approximately 29.1 percent of market deposits. In addition, the HHI in the Milledgeville banking market would increase not more than 240 points to 1812. At least eight competitors would remain in the banking market, including four competitors other than BB&T that each would control 10 percent or more of market deposits.

The Board has considered the views of the Department of Justice and the other banking agencies on the competitive effects of the proposal in each relevant banking market. The Department of Justice has advised the Board that, in light of the proposed divestiture, consummation of the proposal likely would not have a significantly adverse effect on competition in any relevant banking market. The Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation have been afforded an opportunity to comment and have not objected to consummation of the proposal.

Based on all the facts of record, including the proposed divestiture in the Milledgeville banking market and the number and size of competitors remaining in the market, the Board concludes that consummation of the proposal would not result in any significantly adverse effects on competition or on the concentration of banking resources in the banking markets in which BB&T and Premier directly compete or in any other relevant banking market.

Other Considerations

The BHC Act requires the Board, in acting on an application, to consider the financial and managerial resources and future prospects of the companies and banks involved, the convenience and needs of the communities to be served, and certain supervisory factors. The Board has reviewed these factors in light of the record, including supervisory reports of examination assessing the financial and managerial resources of the organizations and financial information provided by BB&T. Based on all the facts of record, the Board concludes that the financial and managerial resources and the future prospects of BB&T, Premier, and their respective subsidiary banks are consistent with approval, as are the other supervisory factors the Board must consider under the BHC Act. In addition, considerations related to the convenience and needs of the communities to be served, including the records of performance of the institutions involved under the Community Reinvestment Act (12 U.S.C. [sections] 2901 et seq.), are consistent with approval of the proposal.

Conclusion

Based on the foregoing, and in light of all the facts of record, the Board has determined that the application should be, and hereby is, approved. The Board's approval is specifically conditioned on compliance by BB&T with all the commitments made in connection with the proposal and with the conditions stated or referred to in this order, including BB&T's divestiture commitments. For the purpose of this action, the commitments and conditions referred to above are deemed to be conditions imposed in writing by the Board in connection with its findings and decision and, as such, may be enforced in proceedings under applicable law.

The proposed transaction shall not be consummated before the fifteenth calendar day following the effective date of this order, or later than three months after the effective date of this order, unless such period is extended for good cause by the Board or by the Federal Reserve Bank of Richmond, acting pursuant to delegated authority.

By order of the Board of Governors, effective December 17, 1999.

Voting for this action: Chairman Greenspan, Vice Chairman Ferguson, and Governors Kelley, Meyer, and Gramlich.

(1.) Asset data are as of June 30, 1999. Deposit data are as of June 30, 1999, and are adjusted to include acquisitions by BB&T after that date. In this context, depository institutions include commercial banks, savings banks, and savings associations.

(2.) See 12 U.S.C. [sections] 1842(d). A bank holding company's home state is the state in which the total deposits of all banking subsidiaries of such company were the largest on July 1, 1966, or the date on which the company became a bank holding company, whichever is later. 12 U.S.C. [sections] 1841(o)(4)(c).

(3.) For purposes of section 3(d) of the BHC Act, the Board considers a bank to be located in the states in which the bank is chartered, headquartered, or operates a branch. See 12 U.S.C. [subsections] 1841(o)(4)-(7) and 1842(d)(1)(A) and (2)(B).

(4.) See 12 U.S.C. [subsections] 1842(d)(1)(A) and (B) and 1842(d)(2)(A) and (B). BB&T meets the capital and managerial requirements established under applicable law, and the subsidiary banks of Premier have beer, in existence and operated for five years, as required by applicable state law. See Ga. Code Ann. [sections] 7-1-622(b)(1) (Lexis 1999). After consummation of the proposal, BB&T would control less than 10 percent of the total amount of deposits of insured depository institutions in the United States and less than 30 percent of total deposits held by insured depository institutions in Georgia, which is the percentage established by state law. See Ga. Code Ann. [sections] 7-1-622(b)(2)(B). All other requirements under section 3(d) of the BHC Act also would be met on consummation of the proposal.

(5.) See 12 U.S.C. [sections] 1842(c).

(6.) The Atlanta banking market is defined as the counties of Bartow, Cherokee, Clayton, Cobb, Coweta, DeKalb, Douglas, Fayette, Forsyth, Fulton, Gwinett, Hall (excluding the town of Clermont), Henry, Newton, Paulding, Rockdale, and Walton, and the towns of Auburn and Winder in Barrow County.

(7.) The Milledgeville banking market is defined as Baldwin and Hancock Counties and the northern half of Wilkinson County. BB&T entered the Milledgeville banking market in November 1999, through the acquisition of First Liberty Financial Corp. and its subsidiary bank, First Liberty Bank, both in Macon, Georgia.

(8.) Market share data for the Atlanta banking market are as of June 30, 1998, and for the Milledgeville banking market as of June 30, 1999. These data are based on calculations that include the deposits of thrift institutions at 50 percent. The Board previously has indicated that thrift institutions have become, or have the potential to become, significant competitors of commercial banks. See, e.g., Midwest Financial Group, 75 Federal Reserve Bulletin 386 (1989); National City Corporation, 70 Federal Reserve Bulletin 743 (1983). Thus, the Board has regularly included thrift deposits in the calculation of market share on a 50-percent weighted basis. See, e.g., First Hawaiian, Inc., 77 Federal Reserve Bulletin 52 (1991).

(9.) Under the DOJ Guidelines, 49 Federal Register 26,823 (June 29, 1984), a market is considered moderately concentrated when the post-merger HHI is between 1000 and 1800, and is considered highly concentrated when the post-merger HHI is more than 1800. The Department of Justice has informed the Board that a bank merger or acquisition generally will not be challenged (in the absence of other factors indicating anticompetitive effects) unless the post-merger HHI is at least 1800 and the merger increases the HHI by more than 200 points. The Department of Justice has stated that the higher than normal HHI thresholds for screening bank mergers for anticompetitive effects implicitly recognize the competitive effects of limite-do purpose lenders and other nondepository financial institutions.

(10.) BB&T is the 14th largest depository institution in the market, controlling deposits of $327.1 million, representing less than 1 percent of market deposits. Premier is the eighth largest depository institution in the market, controlling deposits of $1 billion, representing approximately 2.3 percent of market deposits. On consummation of the proposal, BB&T would become the seventh largest depository institution in the market, controlling deposits of approximately $1.4 billion, representing approximately 3 percent of market deposits. The HHI would increase 3 points to 1210.

(11.) BB&T has committed to execute, before consummation of the proposal, a sales agreement for the proposed divestiture with a purchaser determined by the Board to be competitively suitable, and to complete the divestiture within 180 days of consummation of the proposal. BB&T also has committed that, if it is unsuccessful in completing the divestiture within the 180-day period, it will transfer the unsold branch to an independent trustee that is acceptable to the Board and will instruct the trustee to sell the branch promptly to an alternative purchaser acceptable to the Board. See BankAmerica Corporation, 78 Federal Reserve Bulletin 338 (1992); United New Mexico Financial Corporation, 77 Federal Reserve Bulletin 484 (1991). BB&T also has committed to submit to the Board, within 120 days after consummation of the proposal, an executed trust agreement acceptable to the Board stating the terms of the proposed divestiture.

ROBERT DEV. FRIERSON Associate Secretary of the Board

Banque Nationale de Paris Paris, France

Paribas Paris, France

Order Approving Notice to Engage in Nonbanking Activities

Banque Nationale de Paris ("BNP"), a bank holding company within the meaning of the Bank Holding Company Act ("BHC Act"), and Paribas, a foreign banking organization subject to the BHC Act (collectively, "Notificants"), have requested the Board's approval under section 4(c)(8) of the BHC Act (12 U.S.C. [sections] 1843(c)(8)) and section 225.24 of the Board's Regulation Y (12 C.F.R. 225.24) to retain their ownership interest in Paribas Corporation, Paribas Asset Management, Inc., and Paribas Futures, Inc., all in New York, New York (collectively, "Companies"), and thereby engage in the following activities:

(1) Extending credit and servicing loans, in accordance with section 225.28(b)(1) of Regulation Y (12 C.F.R. 225.28(b)(1));

(2) Asset management, servicing, and collection activities related to extending credit, and acquiring debt in default, in accordance with section 225.28(b)(2) of Regulation Y (12 C.F.R. 225.28(b)(2));

(3) Providing financial and investment advisory services, in accordance with section 225.28(b)(6) of Regulation Y (12 C.F.R. 225.28(b)(6));

(4) Providing securities brokerage, riskless principal, private placement, futures commission merchant, and other agency transactional services, in accordance with section 225.28(b)(7) of Regulation Y (12 C.F.R. 225.28(b)(7));

(5) Underwriting and dealing in government obligations and money market instruments that state member banks may underwrite or deal in under 12 U.S.C. 24 and 335 ("bank-eligible securities"), and engaging as principal in investing and trading activities, in accordance with section 225.28(b)(8) of Regulation Y (12 C.F.R. 225.28(b)(8));

(6) Underwriting and dealing in, to a limited extent, all types of debt and equity securities that a member bank may not underwrite or deal in, except for ownership interests in open-end investment companies ("bank-ineligible securities"); and

(7) Acting as the general partner of certain private investment funds that invest only in assets in which a bank holding company is permitted to invest.

Notice of the proposal, affording interested persons an opportunity to submit comments, has been published (64 Federal Register 59,772 (1999)). The time for filing comments has expired, and the Board has considered the proposal and all comments received in light of the factors set forth in section 4(c)(8) of the BHC Act.

Companies are wholly owned subsidiaries of Paribas. Paribas previously controlled Companies in reliance on grandfather rights established by section 8(c) of the International Banking Act. BNP acquired its indirect ownership interest in Companies in August 1999, as a result of its acquisition through a public tender offer of 65.2 percent of the voting shares of Paribas.(1) Paribas's grandfather rights under section 8(c) of the IBA terminated on consummation of BNP's acquisition of Paribas.(2) BNP and Paribas have not merged with each other and remain separate foreign banking organizations.

Paribas, with consolidated total assets of approximately $299 billion, is the fifth largest banking organization headquartered in France and the 27th largest in the world. Paribas operates branches in New York, New York, and Chicago, Illinois; agencies in Los Angeles, California, and Houston, Texas; and representative offices in San Francisco, California; Atlanta, Georgia; and Dallas, Texas.(3)

Before its acquisition of Paribas, BNP had consolidated total assets of approximately $365 billion, and was the third largest banking organization headquartered in France and the 22nd largest banking organization in the world.(4) In light of its acquisition of Paribas, BNP has consolidated total assets of approximately $655 billion and is the fourth largest banking organization in the world. BNP directly operates branches in New York, New York; Los Angeles and San Francisco, California; and Chicago, Illinois; agencies in Miami, Florida, and Houston, Texas; and a representative office in Dallas, Texas. BNP also controls BancWest Corporation, San Francisco, California, which itself controls Bank of the West, San Francisco, California, and First Hawaiian Bank, Honolulu, Hawaii.

Paribas Corporation currently engages in bank-ineligible securities activities in the United States. BNP also engages in bank-ineligible securities activities in the United States through its section 20 subsidiary, BNP Capital Markets, LLC, New York, New York ("BNP Capital"). BNP has stated that it currently intends to operate BNP Capital and Paribas Corporation as separate corporate entities, although it may decide to merge the two entities at some point in the future. Accordingly, Notificants have applied to hold Paribas Corporation pursuant to section 4(c)(8) of the BHC Act. BNP Capital and Paribas Corporation are, and would continue to be, registered as broker-dealers with the Securities and Exchange Commission ("SEC") under the Securities Exchange Act of 1934 (15 U.S.C. [sections] 78a et seq.). Accordingly, both are, and would continue to be, subject to the recordkeeping and reporting obligations, fiduciary standards, and other requirements of the Securities Exchange Act of 1934 and the SEC.

Underwriting and Dealing in Bank-Ineligible Securities

The Board has determined that, subject to the prudential framework of limitations established in previous decisions to address the potential for conflicts of interests, unsound banking practices, or other adverse effects, underwriting and dealing in bank-ineligible securities are so closely related to banking as to be a proper incident thereto within the meaning of section 4(c)(8) of the BHC Act.(5) The Board also has determined that underwriting and dealing in bank-ineligible securities is consistent with section 20 of the Glass-Steagall Act (12 U.S.C. [sections] 377), provided that the company engaged in the activities derives no more than 25 percent of its gross revenues from underwriting and dealing in bank-ineligible securities over a two-year period.(6) Notificants have committed that they will conduct their bank-ineligible securities underwriting and dealing activities subject to the 25-percent revenue limitation and the prudential limitations previously established by the Board. As long as BNP Capital and Paribas Corporation remain separate corporate entities, each will be independently subject to the 25-percent revenue limit on underwriting and dealing in bank-ineligible securities. As a condition of this order, BNP, Paribas, and Paribas Corporation are required to conduct their bank-ineligible securities activities subject to the Operating Standards for section 20 subsidiaries.(7)

Other Activities Approved by Regulation or Order

The Board previously has determined by regulation or order that engaging in credit and credit-related activities; financial and investment advisory activities; securities brokerage, riskless principal, private placement, futures commission merchant, and other agency transactional services; and bank-eligible securities underwriting and dealing, are closely related to banking for purposes of section 4(c)(8) of the BHC Act.(8) In addition, the Board previously has determined by order that private investment fund activities are permissible for bank holding companies when conducted within certain limits(9) Notificants have committed that these activities will be conducted in accordance with the Board's regulations and prior Board decisions relating to these activities.

Proper Incident to Banking Standard

In order to approve the proposal, the Board also must determine that the proposed activities are a proper incident to banking, that is, that performance of the proposed activities by Notificants "can reasonably be expected to produce benefits to the public ... that outweigh possible adverse effects, such as undue concentration of resources, decreased or unfair competition, conflicts of interests, or unsound banking practices."(10) As a part of its evaluation of these factors, the Board considers the financial condition and managerial resources of the notificants and their subsidiaries and the effect the transaction would have on those resources.(11)

The Board has carefully considered the financial resources of BNP and Paribas and notes that the capital ratios of both satisfy applicable risk-based standards under the Basle Capital Accord, and are considered equivalent to the capital levels that would be required of a United States banking organization. The Board also has reviewed the capitalization of BNP, Paribas, and Paribas Corporation in accordance with the standards set forth in the Section 20 Orders and finds the capitalization of each to be consistent with approval. The Board's determination is based on all the facts of record, including Notificants' projections of the volume of bank-ineligible securities underwriting and dealing activities proposed to be conducted by Paribas Corporation.

The Board also has carefully reviewed the managerial resources of the organizations involved in light of all the facts of record, including confidential examination reports concerning BNP Capital and Paribas Corporation, and the Board's supervisory experience with both BNP and Paribas. As noted above, BNP currently controls BNP Capital, which engages in underwriting and dealing in bank-ineligible securities pursuant to the Board's Section 20 Orders. The Board previously has determined that BNP and BNP Capital have established appropriate policies and procedures to ensure compliance with the Board's Section 20 Orders, including computer, audit, and accounting systems, internal risk management controls, and the necessary operational and managerial infrastructure.(12) Notificants have stated that the policies and procedures in place at BNP and BNP Capital to ensure compliance with the Board's Section 20 Orders and Operating Standards will be implemented at Paribas Corporation. On the basis of these and all other facts of record, including the commitments provided in this case and the proposed managerial structure and risk management systems of Paribas Corporation, the Board has concluded that financial and managerial considerations are consistent with approval.

The Board also has carefully considered the competitive effects of the proposed transaction under section 4 of the BHC Act. As noted above, Paribas currently controls Companies. To the extent that BNP and Companies offer different types of nonbanking products, the proposed acquisition would result in no loss of competition. In those markets in which the nonbanking product offerings of BNP and Companies overlap, such as securities brokerage, underwriting and dealing in bank-eligible and bank-ineligible securities, and investment advisory activities, there are numerous existing and potential competitors. Consummation of the proposal, therefore, would have a de minimis effect on competition in the market for those services. Based on all the facts of record, the Board has concluded that the proposal would not result in any significantly adverse competitive effects in any relevant market.

As noted above, Notificants have committed that Paribas Corporation will conduct its bank-ineligible securities underwriting and dealing activities in accordance with the prudential framework established by the Board's Section 20 Orders. Under the framework and conditions established in this order and the Section 20 Orders, and based on all the facts of record, the Board concludes that the proposed bank-ineligible underwriting and dealing activities are not likely to result in significantly adverse effects. Similarly, the Board concludes that the conduct of the other proposed nonbanking activities by Notificants under the framework and conditions established in this order, prior orders, and Regulation Y is not likely to result in any significantly adverse effects.

The Board also expects that the proposed acquisition would provide added convenience to the customers of BNP and Paribas. Notificants have indicated that the transaction would strengthen the position of the combined organization in French, European, and international financial markets, and would allow the combined organization to diversify its sources of revenue. In addition, there are public benefits to be derived from permitting capital markets to operate so that bank holding companies can make potentially profitable investments in nonbanking companies and from permitting banking organizations to allocate their resources in the manner they consider to be most efficient when such investments are consistent, as in this case, with the relevant considerations under the BHC Act.

Based on all the facts of record, the Board has determined that performance of the proposed activities by Notificants, under the framework established in this and prior decisions, can reasonably be expected to produce public benefits that outweigh any reasonably expected adverse effects of the proposal. Accordingly, the Board has determined that performance of the proposed activities by Notificants is a proper incident to banking for purposes of section 4(c)(8) of the BHC Act.

Conclusion

Based on all the facts of record, the Board has determined that the notice should be, and hereby is, approved, subject to all the terms and conditions in this order and the Section 20 Orders, as modified by the Modification Orders.

The Board's approval of this proposal extends only to activities conducted within the limitations of those orders and this order, including the Board's reservation of authority to establish additional limitations to ensure that the activities of Notificants are consistent with safety and soundness, avoidance of conflicts of interests, and other relevant considerations under the BHC Act. Underwriting and dealing in any manner other than as approved in this order and the Section 20 Orders (as modified by the Modification Orders) is not within the scope of the Board's approval and is not authorized for Notificants or Paribas Corporation.

In reaching its conclusion, the Board has considered all the facts of record in light of the factors that the Board is required to consider under the BHC Act and other applicable statutes. The Board's approval is specifically conditioned on compliance by Notificants with all the commitments made in connection with this notice, and on the Board's receiving access to information on the activities or operations of Notificants and any of their affiliates that the Board determines to be appropriate to determine and enforce compliance by Notificants and their affiliates with applicable federal statutes. The Board's approval also is subject to all the conditions set forth in this order and in Regulation Y, including those in sections 225.7 and 225.25(c) of Regulation Y (12 C.ER. 225.7 and 225.25(c)), and to the Board's authority to require such modification or termination of the activities of a bank holding company or any of its subsidiaries as the Board finds necessary to ensure compliance with, and to prevent evasion of, the provisions of the BHC Act and the Board's regulations and orders issued thereunder. These commitments and conditions are deemed to be conditions imposed in writing by the Board in connection with its findings and decision and, as such, may be enforced in proceedings under applicable law.

This transaction shall not be consummated later than three months after the effective date of this order unless such period is extended for good cause by the Board or by the Federal Reserve Bank of San Francisco, acting pursuant to delegated authority.

By order of the Board of Governors, effective December 20, 1999.

Voting for this action: Chairman Greenspan, Vice Chairman Ferguson, and Governors Kelley, Meyer, and Gramlich.

(1.) BNP received the Board's approval under section 4(c)(9) of the BHC Act to retain temporarily its indirect ownership interest in Companies pending submission of this notice. See Letter from Robert dev. Frierson, Associate Secretary of the Board, to Paul E. Glotzer, Esq., dated July 28, 1999. After August 1999, BNP acquired an additional 31.1 percent of the voting shares of Paribas through a second public tender offer. BNP has indicated that it intends to exercise its rights under French law to acquire the remaining 3.7 percent of Paribas' voting shares and thereby acquire all of Paribas' voting shares.

(2.) Paribas also controls several other subsidiaries that engaged in nonbanking activities in the United States pursuant to grandfather rights established by section 8(c) of the IBA. BNP and Paribas must conform all the activities currently conducted by Paribas in reliance on section 8(c)of the IBA to the requirements of the BHC Act within two years of the date that BNP acquired control of Paribas. See 12 U.S.C. [sections] 3106(c)(2).

(3.) Because BNP and Paribas continue to operate in the same corporate form, BNP's acquisition of Paribas did not result in the establishment by BNP of any additional branches, agencies or representative offices in the United States for purposes of section 211.24 of the Board's Regulation K (12 C.ER. 211.24). BNP has provided the Board notice of its acquisition of control of Paribas as required by section 211.24(a)(4)(i) of Regulation K (12 C.ER. 211.24(a)(4)(i)).

(4.) Asset data are as of June 30, 1999, and ranking data are as of December 31, 1998, and reflect exchange rates then in effect.

(5.) See Canadian Imperial Bank of Commerce, et al., 76 Federal Reserve Bulletin 158 (1990); J.P. Morgan & Co. Incorporated, et al., 75 Federal Reserve Bulletin 192 (1989), aff'd sub nom. Securities Industry Ass'n v. Board of Governors of the Federal Reserve System, 900 F. 2d 360 (D.C. Cir. 1990); Citicorp, et al., 73 Federal Reserve Bulletin 473 (1987), aff'd sub nom. Securities Industry Ass'n v. Board of Governors of the Federal Reserve System, 839 F.2d 47 (2d Cir. 1988), cert. denied, 486 U.S. 1059 (1988) (collectively, "Section 20 Orders").

(6.) See Section 20 Orders. Compliance with the revenue limitation shall be calculated in accordance with the method stated in the Section 20 Orders, as modified by the Order Approving Modifications to the Section 20 Orders, 75 Federal Reserve Bulletin 751 (1989), and 10 Percent Revenue Limit on Bank-Ineligible Activities of Subsidiaries of Bank Holding Companies Engaged in Underwriting and Dealing in Securities, 61 Federal Register 48,953 (1996); and Revenue Limit on Bank-Ineligible Activities of Subsidiaries of Bank Holding Companies Engaged in Underwriting and Dealing in Securities, 61 Federal Register 68,750 (1996) (collectively, "Modification Orders").

(7.) 12 C.F.R. 225.200.

(8.) See 12 C.F.R. 225.28(b)(1), (2), (6), (7), and (8).

(9.) See Dresdner Bank A G, 84 Federal Reserve Bulletin 361 (1998). The private investment fund activities in which Notificants propose to engage consist of serving as the investment adviser to and the general partner of, and holding and placing equity interests in, certain investment funds that invest only in securities and other instruments that Notificants would be permitted to hold directly under the BHC Act ("private investment funds"). The investment funds would include limited partnerships and similar investment vehicles such as limited liability companies. Notificants also propose to act as a commodity pool operator for private investment funds organized as commodity pools that invest in assets which BNP would be permitted to hold directly under the BHC Act.

(10.) See 12 U.S.C. [sections] 1843(c)(8).

(11.) See 12 C.F.R. 225.26.

(12.) See Letter from Kenneth R. Binning, Federal Reserve Bank of San Francisco, to Larry B. Sobin, dated December 2, 1998.

ROBERT DEV. FRIERSON Associate Secretary of the Board

Orders Issued Under Sections 3 and 4 of the Bank Holding Company Act

First Security Corporation Salt Lake City, Utah

Zions Bancorporation Salt Lake City, Utah

Order Approving the Merger of Bank Holding Companies

First Security Corporation ("First Security"), a bank holding company within the meaning of the Bank Holding Company Act ("BHC Act"), has requested the Board's approval under section 3 of the BHC Act (12U. S.C. [sections] 1842) to merge with Zions Bancorporation ("Zions") and thereby acquire the subsidiary banks of Zions.(1) First Security also has requested the Board's approval under section 4(c)(8) of the BHC Act (12 U.S.C. [sections] 1843(c)(8)) and section 225.24 of the Board's Regulation Y (12 C.F.R. 225.24) to acquire the nonbanking subsidiaries of Zions and thereby engage in certain permissible nonbanking activities.(2)

Notice of the proposal, affording interested persons an opportunity to submit comments, has been published (64 Federal Register 48,839 (1999)).(3) The time for filing comments has expired, and the Board has considered the proposal and all comments received in light of the factors set forth in sections 3 and 4 of the BHC Act.(4)

First Security, with total consolidated assets of $22.1 billion, is the 39th largest commercial banking organization in the United States, controlling less than 1 percent of the total assets of insured commercial banks in the United States ("total U.S. banking assets").(5) First Security's subsidiary banks operate in California, Idaho, Nevada, New Mexico, Oregon, Utah, and Wyoming. First Security is the largest commercial banking organization in Utah, controlling deposits of $5.0 billion, representing approximately 28.9 percent of total deposits in insured depository institutions in the state ("state deposits").(6) First Security also engages in a broad range of permissible nonbanking activities in the United States, including underwriting and dealing in debt and equity securities to a limited extent. Zions, with total consolidated assets of $17.6 billion, is the 47th largest commercial banking organization in the United States, controlling less than 1 percent of total U.S. banking assets. The subsidiary banks of Zions operate in Arizona, California, Colorado, Idaho, Nevada, New Mexico, Utah, and Washington. Zions is the second largest commercial banking organization in Utah, controlling deposits of approximately $3.4 billion, representing approximately 20 percent of state deposits. Zions also engages in a range of permissible nonbanking activities in the United States.

After consummation of the proposal, and after accounting for the proposed divestitures discussed in this order, First Security would become the 24th largest commercial banking organization in the United States, with total consolidated assets of approximately $38 billion, representing less than 1 percent of total U.S. banking assets, and First Security's subsidiary banks would operate in ten states. First Security also would remain the largest commercial banking organization in Utah, controlling deposits of $6.4 billion, representing approximately 44 percent of state deposits.

Factors Governing Board Review of Transaction

The BHC Act sets forth the factors that the Board must consider when reviewing the formation of a bank holding company or the acquisition of banks. These factors are the competitive effects of the proposal in the relevant geographic markets; the financial and managerial resources and future prospects of the companies and banks involved in the proposal; the convenience and needs of the community to be served, including the records of performance under the Community Reinvestment Act (12 U.S.C. [sections] 2901 et seq.) ("CRA") of the insured depository institutions involved in the transaction; and the availability of information needed to determine and enforce compliance with the BHC Act.(7) In cases involving interstate bank acquisitions, the Board also must consider the concentration of deposits in the nation and relevant individual states on consummation of the proposal, as well as compliance with other provisions of section 3(d) of the BHC Act.

The Board has considered these factors in light of a comprehensive record that includes information provided by First Security, confidential supervisory and examination information, and publicly reported financial and other information. The Board also has considered information provided by public commenters in connection with the proposal.(8)

Interstate Analysis

Section 3(d) of the BHC Act allows the Board to approve an application by a bank holding company to acquire control of a bank located in a state other than the home state of the bank holding company if certain conditions are met. For purposes of the BHC Act, the home state of First Security is Utah? and the subsidiary banks of Zions are located in Arizona, California, Colorado, Idaho, Nevada, New Mexico, Utah, and Washington.(10) All the conditions for an interstate acquisition enumerated in section 3(d) are met in this case.(11) In light of all the facts of record, the Board is permitted to approve the proposal under section 3(d) of the BHC Act.

Competitive Considerations

Section 3 of the BHC Act prohibits the Board from approving a proposal that would result in a monopoly or would be in furtherance of any attempt to monopolize the business of banking in any relevant banking market. The BHC Act also prohibits the Board from approving a proposed bank acquisition that would substantially lessen competition in any relevant banking market, unless the Board finds that the anticompetitive effects of the proposal are clearly outweighed in the public interest by the probable effect of the proposal in meeting the convenience and needs of the community to be served.(12)

The proposed merger of First Security and Zions would combine two banking organizations that are among the largest providers of banking services in a number of markets in the western United States. The Board has carefully analyzed the likely effect of the transaction on competition in each relevant banking market in light of all the facts of record, including information collected by the Federal Reserve System, information provided by First Security and other competitors in the relevant markets, information provided by the Department of Justice and other relevant agencies, and public information. The Board also has carefully considered public comments submitted on the competitive effects of the proposal. In particular, commenters contend that the merger would reduce competition for banking services and result in higher fees and reduced customer convenience. In addition, commenters claim that the merger would have substantial anticompetitive effects in the Salt Lake market, in other portions of Utah, and in other states.

A. Definition of Banking Markets

In order to determine the effect of a particular transaction on competition, it is necessary to designate the area of effective competition between the parties, which the courts have held is decided by reference to the relevant "line of commerce," or product market, and geographic market. Some commenters contend that the competitive analysis should focus on the impact of the merger on the markets for consumer credit, small business loans, and large-scale commercial banking. Commenters also suggest that the relevant geographic market for analyzing the merger should be regional or statewide.

Product Market. The Board and the courts consistently have recognized that the appropriate product market for analyzing the competitive effects of bank mergers and acquisitions is the cluster of products (various kinds of credit) and services (such as checking accounts and trust administration) offered by banking institutions.(13) According to the Supreme Court, the clustering of banking products and services facilitates convenient access to these products and services, and vests the cluster with economic significance beyond the individual products and services that constitute the cluster.(14) Several studies support the conclusion that both businesses and households continue to seek this cluster of services.(15) Consistent with these precedents and studies, and on the basis of the facts of record in this case, the Board concludes that the cluster of banking products and services represents the appropriate product market for analyzing the competitive effects of this proposal.

Geographic Market. In defining the relevant geographic market, the Board consistently has sought to identify the area in which the cluster of banking products and services is provided by competing institutions and in which purchasers of the products and services seek to obtain these products and services.(16) In applying these standards to bank acquisition proposals, the Board and the courts repeatedly have held that the geographic market for the cluster of banking products and services is local in nature.(17) In delineating the relevant geographic market in which to assess the competitive effects of a bank merger or acquisition, the Board reviews population density; worker commuting patterns; the usage and availability of banking products; advertising patterns of financial institutions; the presence of shopping, employment, healthcare, and other necessities; and other indicia of economic integration and the transmission of competitive forces among banks.(18)

In applying these factors and principles, the Board has employed a methodology that defines a retail banking market by identifying a market core as cities or counties that contain substantial employment opportunities and then grouping surrounding areas with significant patterns of commuting to and other indicia of economic integration with the market core. The criteria for adding communities to the market delineation become more stringent as the counties become more remote from the core. Following this approach, the Board has identified 32 local banking markets in four states in which First Security and Zions compete.(19) As noted above, several commenters and the applicant question the appropriate definition of the Salt Lake City banking market. The definition of the appropriate market is not contested by commenters or the applicant in the other markets in which First Security and Zions compete. The Board has, therefore, paid special attention to defining the relevant geographic banking market in the Salt Lake City area.

B. Relevant Geographic Banking Market for the Salt Lake City Area

The three metropolitan areas of Salt Lake City, Ogden, and Provo-Orem are located in a corridor known as the Wasatch Front in north-central Utah. First Security contends that the appropriate geographic market for analyzing competition for banking services along the Wasatch Front is a single market that combines the Salt Lake City, Ogden, and Provo-Orem Ranally Metropolitan Areas ("RMA"s).(20) The Board has concluded, however, that there are three separate banking markets along the Wasatch Front:

(i) The Salt Lake City banking market (which comprises the Salt Lake RMA and the towns of Fruit Heights, Grantsville, Kaysville, and Tooele);

(ii) The Ogden banking market (which comprises the Ogden RMA, excluding the towns of Fruit Heights and Kaysville); and

(iii) The Provo-Orem banking market (which comprises the Provo-Orem RMA)?

Numerous factors suggest that the Salt Lake City, Ogden, and Provo-Orem RMAs constitute separate banking markets. First, large distances and lack of continuous economic development separate the cities in the three RMAs. Ogden is approximately 36 miles north of Salt Lake City and 16 miles from the boundary of the Salt Lake market. Provo is approximately 46 miles south of Salt Lake City and 22 miles from the boundary of the Salt Lake market. Orem is approximately 38 miles south of Salt Lake City and 14 miles from the boundary of the Salt Lake market. The Board also notes that development between the Provo-Orem and Salt Lake RMAs is not continuous. Population density and commercial development is low along the interstate that connects Provo-Orem to Salt Lake, from Lehi, about seven miles south of the border between the Provo-Orem and Salt Lake RMAs, to Draper, about six miles north of the border. Although the development between the Ogden and Salt Lake RMAs is more continuous, the development is predominantly residential for several miles on either side of the border between the two RMAs.

Moreover, although the amount of commuting between the Salt Lake City RMA and the two other RMAs is increasing, overall commuting levels remain low. Commuting data for 1990 from the U.S. Bureau of the Census ("Census Bureau") indicate that 10.8 percent of workers residing in the Ogden RMA, and 7.2 percent of workers residing in the Provo-Orem RMA, commute to jobs in the Salt Lake market. More recent data on traffic flows between Ogden and Salt Lake and Provo-Orem and Salt Lake indicate that the commuting rates between the RMAs have increased since 1990. These more recent data suggest that approximately 13 percent of workers residing in the Ogden RMA and less than 10 percent of workers residing in the Provo-Orem RMA commuted to jobs in the Salt Lake market in 1998.

Other facts do not indicate that banking forces are transmitted throughout the Wasatch Front at this time. Rather, the three RMAs appear to function as separate banking markets. Based on all the facts of record, the Board believes that the relevant banking markets for considering the effects of the proposal along the Wasatch Front are the three separate banking markets surrounding the Salt Lake City, Ogden, and Provo-Orem RMAs.

C. Competitive Analysis in Salt Lake City and Other Banking Markets with Divestitures

As part of the proposal, First Security has committed to divest 64 branches, which account for more than $2 billion in deposits, in 21 markets in order to reduce the potential for adverse effects on competition.(22) After accounting for the proposed divestitures, consummation of the proposal would be consistent with Board precedent and the Department of Justice Merger Guidelines ("DOJ Guidelines")(23) in at least 16 of the 21 markets: Bonners Ferry, Burley, Montpelier, and Twin Falls, Idaho; and Box Elder, Cedar City, Delta, Ephraim, Logan, Moab, Monticello, Park City, Price, Richfield, Roosevelt, and Vernal, Utah.(24) In light of these divestitures, the transaction would result in no increase in the HHI in the Bonners Ferry and Montpelier, Idaho; and Delta, Ephraim, Moab, Monticello, Price, Richfield, Roosevelt, and Vernal, Utah, banking markets. In addition, numerous competitors would remain in most of these banking markets after consummation of the proposal.

In the five remaining banking markets involving divestitures, including the Salt Lake City market, consummation of the proposal could increase the level of market concentration to levels that exceed the DOJ Guidelines. The Board has conducted a careful review of the competitive effects of the proposal in these markets, and considered whether other factors either mitigate the competitive effects of the proposal in the markets or indicate that the proposal would have a significantly adverse effect on competition in any of the markets. The number and strength of factors necessary to mitigate the competitive effects of a proposal depend on the level of concentration and size of increase in market concentration.(25)

Salt Lake City, Utah. First Security operates the largest of 21 depository institutions in the Salt Lake banking market, and controls $2.7 billion in deposits, representing 33.6 percent of total deposits in depository institutions in the market ("market deposits").(26) Zions operates the second largest depository institution in the market, and controls $1.7 billion in deposits, representing 20.6 percent of market deposits. On a combined basis, First Security and Zions would control approximately 54.2 percent of market deposits, and the HHI would increase approximately 1388 points to 3204, an amount that would exceed the DOJ Guidelines in a highly concentrated market.

In order to address the potential anticompetitive effects of the proposal in the Salt Lake banking market, First Security proposes to divest 17 branches in the market, with $682 million in deposits (representing 8.4 percent of market deposits), to an out-of-market banking organization or an in-market banking organization that currently controls less than 6 percent of market deposits. This divestiture represents almost one-half of the originally proposed increase in market share and would allow a new entrant to become immediately competitive in the market or significantly enhance the market share of a small in-market competitor.

In reviewing the competitive effects of the proposal in the Salt Lake banking market and the adequacy of the proposed divestiture, the Board also has taken into account the structure of the market. In particular, the Board has considered that one savings association operating in the market provides a range of consumer, mortgage, and other banking products and services and, through an affiliate, serves as a significant source of commercial loans in the market. Competition from this savings association closely approximates competition from a commercial bank. On this basis, the Board concludes that deposits controlled by this organization should be weighted at 100 percent in calculating market concentration under the DOJ Guidelines.(27)

Credit unions also are particularly active competitors in the Salt Lake market.(28) Although Utah credit unions are membership organizations, numerous credit unions in the Salt Lake market are open to all persons in the market or to a substantial majority of the population of the market. Significantly, these credit unions operate through streetlevel branches accessible to the public. On the basis of the activities, open membership, branch operations, size, number, and market shares of credit unions in the market,(29) the Board concludes that credit unions exert a competitive influence that mitigates in part the potential anticompetitive effects of the proposal.(30)

First Security argues that, for purposes of evaluating the competitive factors in the Salt Lake market, the Board should exclude certain categories of deposits that First Security and Zions contend overstate their competitive strength in the Salt Lake market.(31) First Security contends that these deposits either are unavailable for lending in the Salt Lake market or represent deposits that are raised outside the market or in a national market and are available to support out-of-market banking activities. On this basis, First Security argues that inclusion of these deposits in calculations of the market share indices for First Security and Zions in Salt Lake distorts the indices.(32)

The Board generally has not adjusted its market share calculations in previous cases to exclude out-of-market deposits because of the difficulty of making comparable adjustments for other firms in the market and because out-of-market deposits are typically available to support lending and other banking activities at any location. The Board has under very limited circumstances adjusted market indices to account for certain types of government deposits, however, where special conditions limited the use of the deposits. In this case, the Board continues to believe, for the same reasons, that it is generally not appropriate to exclude categories of deposits.

This case has unique circumstances, however, that reduce the difficulties of making an adjustment for a limited number of out-of-market deposits. The comparability problem is less severe in this case than in past cases reviewed by the Board because First Security and Zions are the only two large banking organizations headquartered in the Salt Lake market that appear to have generated significant out-of-market deposits.(33)

The Board continues to believe that deposits maintained by a banking organization in a specific market, including deposits generated outside the market, represent an important measure of the banking organization's capacity to compete in that market.(34) First Security and Zions have generated some deposits from out-of-market sources, however, that are subject to legal or other restrictions that constrain the organizations' ability to use the deposits to support their general banking activities. These deposits have been generated from various governments and municipalities outside Utah, involve escrow accounts for mortgages made outside Utah, or represent correspondent banking accounts with institutions outside Utah. With each of these deposit types, First Security and Zions are limited by law, contract, or duration of relationship in their ability to use the deposits for any activity other than supporting the deposit account. Because of the limited availability of these deposits and because the data suggest that making adjustments for First Security and Zions would not distort market calculations for other competitors in the Salt Lake market, the Board has taken into account as a mitigating factor this limited set of out-of-market deposits in this case.(35)

The presence of other bank competitors also is an important factor in this market. At least 20 depository institutions would remain in the market after consummation of the proposal, including four bank holding companies and one savings association holding company that each have more than $80 billion in assets. The second and third largest depository institutions in the market are among the largest commercial banking organizations in the United States. These organizations would control approximately 10.2 percent and 8.2 percent, respectively, of market deposits.

In addition, the Salt Lake market is attractive for entry by out-of-market competitors. According to the Census Bureau, the population of the Salt Lake City RMA increased 14.5 percent from 1990 to 1998, which was significantly higher than the national rate. The increase in employment between 1990 and 1998 was 28 percent, which was over twice the national rate. Moreover, in 1998, the Salt Lake City unemployment rate was 3.9 percent, which was below the national rate of 4.5 percent.

Based on all the facts of record, the Board concludes that the considerations discussed above, including the proposed divestitures, the number and strength of competitors in the market, the strong presence of bank-like credit unions, the distortional effects of out-of-market deposits, the attractiveness of the market for entry by out-of-market competitors, and other factors mitigate the potentially adverse competitive effects in the Salt Lake City banking market.

Ogden, Utah. First Security operates the largest of 13 depository institutions in the Ogden banking market, and controls $450 million in deposits, representing 36.8 percent of market deposits. Zions operates the fourth largest depository institution in the market, and controls $116 million in deposits, representing 9.5 percent of market deposits. First Security proposes to divest three branches in the market, with $77 million in deposits (representing approximately 6.3 percent of market deposits). After the proposed merger and divestiture, First Security would continue to operate the largest depository institution in the market, controlling 39.9 percent of market deposits, and the HHI would increase by less than 393 points to a level that does not exceed 2382.(36)

Several factors suggest that the increase in market concentration in the Ogden market, as measured by the HHI, does not reflect a significantly adverse effect on competition in the market. At least twelve depository institutions would remain in the market after consummation of the proposal, including four large multistate banking organizations other than First Security. In addition, at least two banking organizations other than First Security would each control more than 10 percent of market deposits, and five banking organizations other than First Security would each control more than 5 percent of market deposits, after consummation. As noted above, First Security has committed to divest branches controlling 6.3 percent of market deposits. The proposed divestiture would either add a new competitor or would enhance the competitive presence of a smaller competitor.

In addition, the Ogden banking market has characteristics that make it attractive for entry. The population of the market increased by 16 percent from 1990 to 1998, which was almost double the national rate. Employment in the market increased by 27 percent during the same time period, more than double the national rate. One firm entered the Ogden market de novo in 1997.

Moreover, as in the case of the Salt Lake banking market, credit unions have a significant presence in the Ogden market, and many credit unions are uniquely open and accessible to all or almost all persons in the market. In particular, eight credit unions have membership rules based on geography or other characteristics that allow a substantial majority of the residents in the market to be members, and maintain street-level branches that are accessible to the public.(37)

Provo-Orem, Utah. First Security operates the second largest of 14 depository institutions in the Provo-Orem banking market, and controls $535 million in deposits, representing 29.9 percent of market deposits. Zions operates the largest depository institution in the market, and controls $536 million in deposits, representing 30 percent of market deposits. First Security proposes to divest eight branches in the market, with $359 million in deposits (representing approximately 20.1 percent of market deposits) to an out-of-market banking organization or an in-market banking organization that currently controls 2.4 percent or less of market deposits. After the proposed merger and divestiture, First Security would operate the largest depository institution in the market, controlling 39.8 percent of market deposits, and the HHI would increase by less than 292 points to a level that does not exceed 2383.(38)

In reviewing the competitive effects of the proposal in this market, the Board has considered that a significant portion of the HHI increase resulting from the proposed transaction is caused by the fact that the divested branches control a large amount of deposits. If First Security were to divest the branches, which represent approximately 20 percent of market deposits and two-thirds of the deposits being acquired by First Security in the market, as a unit to an out-of-market firm, the proposal would be consistent with the DOJ Guidelines.(39) The Board believes that sale of these branches substantially mitigates the potential anticompetitive effects of the proposal by helping to create a viable competitor to First Security in the market. Sale of these branches to an in-market competitor that currently has only a nominal market share would have similar benefits to an out-of-market sale.

At least 13 depository institutions would remain in the market after consummation of the proposal, including four large multistate banking organizations other than First Security. At least three banking organizations other than First Security would control more than 10 percent of market deposits after consummation. As noted above, First Security's proposed divestiture of approximately 20 percent of market deposits would either add a strong new competitor or would enhance substantially the competitive presence of a smaller competitor.

In addition, the Provo-Orem banking market has characteristics that make it attractive for entry. The population of the market increased by 21 percent from 1990 to 1998. Recent entries by depository institutions also confirm that the Provo-Orem banking market is attractive for entry. Three firms have entered the market de novo since 1993.

Moreover, as in the case of the Salt Lake banking market, credit unions have a significant presence in the Provo-Orem market, and many credit unions are uniquely open and accessible to all or almost all persons in the market. In particular, ten credit unions have membership rules based on geography or other characteristics that allow a substantial majority of the residents in the market to be members, and maintain street-level branches that are accessible to the public.(40)

St. George, Utah. First Security operates the second largest of 11 depository institutions in the St. George banking market, and controls $241 million in deposits, representing 39 percent of market deposits. Zions operates the largest depository institution in the market, and controls $245 million in deposits, representing 39.6 percent of market deposits. First Security proposes to divest four branches in the market, with $221 million in deposits (representing approximately 35.7 percent of market deposits). After the proposed merger and divestiture, First Security would operate the largest depository institution in the market, controlling 42.8 percent of market deposits, and the HHI would increase by less than 325 points to a level that does not exceed 3471.

As in the Provo-Orem market, the Board has considered that a significant portion of the HHI increase in the St. George market is caused by the fact that the divested branches control a large amount of deposits. In fact, in this market, First Security proposes to divest almost all of the deposits held by Zions in the market, with the result that the market share controlled by First Security would increase by less than 4 percent as a result of the proposed merger and divestiture. If First Security were to divest the branches, which represent approximately 36 percent of the market, as a unit to an out-of-market firm, the proposal would be consistent with the DOJ Guidelines.(41) The Board believes that sale of these branches substantially mitigates the potential anticompetitive effects of the proposal by helping to create a viable competitor to First Security in the market. The sale of these branches to an in-market competitor that currently has only a nominal market share would have benefits similar to an out-of-market sale.

At least ten depository institutions would remain in the market after consummation of the proposal, including two large multistate banking organizations other than First Security. In addition, the St. George banking market has characteristics that make it attractive for entry. The population of the market increased by 69 percent from 1990 to 1998, making the St. George area one of the fastestgrowing regions by population in Utah. Recent entries by depository institutions also confirm that the St. George banking market is attractive for entry. Five firms have entered the market de novo since 1993.

Moreover, as in the case of the Salt Lake banking market, credit unions have a significant presence in the St. George market, and many credit unions are uniquely open and accessible to all or almost all persons in the market. In particular, five credit unions have membership rules based on geography or other characteristics that allow a substantial majority of the residents in the market to be members, and maintain street-level branches that are accessible to the public.(42)

Lewiston, Idaho. First Security operates the largest of eight depository institutions in the Lewiston banking market, and controls $115 million in deposits, representing 27.4 percent of market deposits. Zions operates the seventh largest depository institution in the market, and controls $17 million in deposits, representing 4.1 percent of market deposits. First Security proposes to divest one branch in the market, with $9.7 million in deposits (representing approximately 2.3 percent of market deposits). After the proposed merger and divestiture, First Security would continue to operate the largest depository institution in the market, controlling 29.1 percent of market deposits, and the HI-II would increase by less than 214 points to a level that does not exceed 2128.

Several mitigating factors suggest that the increase in market concentration in the Lewiston market, as measured by the HHI, does not reflect a significantly adverse effect on competition in the market. At least seven depository institutions would remain in the market after consummation of the proposal, including two large multistate banking organizations other than First Security. In addition, at least two banking organizations other than First Security would control more than 10 percent of market deposits and at least five banking organizations other than First Security would control more than 5 percent of market deposits after consummation. As noted above, First Security has committed to divest one branch controlling 2.3 percent of market deposits. The proposed divestiture would either add a new competitor or would enhance the competitive presence of a smaller competitor.

In addition, the Lewiston banking market has characteristics that make it attractive for entry. The population of the market increased by 13 percent from 1990 to 1998. Moreover, two firms have entered the Lewiston market de novo since 1995.

D. Competitive Analysis of Banking Markets without Divestitures

Consummation of the proposal without divestitures would be consistent with Board precedent and the DOJ Guidelines in ten of the remaining 11 banking markets: Los Angeles and Riverside-San Bernardino, California; Blackfoot, Boise, Idaho Falls, Moscow-Pullman, Ontario, and Pocatello, Idaho; and Carson City and Reno, Nevada.(43)

Las Vegas, Nevada. Consummation of the proposal would exceed the DOJ Guidelines as measured by the HHI in the Las Vegas, Nevada, banking market. First Security operates the fourth largest of 19 depository institutions in the Las Vegas banking market, and controls $879 million in deposits, representing 9.1 percent of market deposits. Zions operates the third largest depository institution in the market, and controls $1.1 billion in deposits, representing 11.2 percent of market deposits. After consummation of the proposal, First Security would operate the third largest depository institution in the market, controlling 20.3 percent of market deposits, and the HHI would increase by 203 points to 2096.

Numerous mitigating factors suggest that the increase in market concentration in the Las Vegas market, as measured by the HHI, does not reflect a significantly adverse effect on competition in the market. At least 18 depository institutions would remain in the market after consummation of the proposal. Several large multistate banking organizations, other than First Security, would compete in this market, including one organization that would remain the largest depository institution in the market with 30.2 percent of market deposits, and another organization that would remain the second largest depository institution in the market with 26.5 percent of market deposits.

In addition, the Las Vegas banking market has characteristics that make it attractive for entry. The population of Las Vegas increased 56 percent from 1990 to 1998, which was more than six times the national rate. Employment increased 51 percent between 1990 and 1998, which was more than four times the national rate of 12 percent. During the last decade, the Las Vegas unemployment rate has been consistently low compared with the national rate. Recent entries by depository institutions also confirm that the Las Vegas banking market is attractive for entry. Eight of the 19 depository institutions in the market entered de novo since 1994. Three depository institutions have entered by acquisition in the past five years, and another group has an application to organize a de novo bank pending before the state banking authority.

The Board believes that these considerations and other factors mitigate the potentially adverse competitive effects of the proposal in the Las Vegas banking market.

E. Views of Other Agencies and Conclusion

The Department of Justice also has conducted a detailed review of the expected competitive effects of the proposal. The Department of Justice has advised the Board that, in light of the proposed divestitures, consummation of the proposal would not be likely to have a significantly adverse effect on competition in any relevant banking market. The Office of the Comptroller of the Currency ("OCC") and the Federal Deposit Insurance Corporation ("FDIC") have been afforded an opportunity to comment and have not objected to consummation of the proposal.

After carefully reviewing all the facts of record, including public comments on the competitive effects of the proposal, and for the reasons discussed in the order and appendices, the Board concludes that consummation of the proposal would not be likely to result in a significantly adverse effect on competition or on the concentration of banking resources in any of the 32 markets in which First Security and Zions both compete, or in any other relevant banking market. Accordingly, based on all the facts of record and subject to completion of the proposed divestitures, the Board has determined that competitive factors are consistent with approval of the proposal.

Financial, Managerial and Other Supervisory Factors

The Board has carefully considered the financial and managerial resources and future prospects of the companies and banks involved in the proposal and other supervisory factors in light of all the facts of record, including public comments.(44) In evaluating the financial and managerial factors, the Board has reviewed relevant reports of examination and other supervisory information prepared by the Federal Reserve Bank of San Francisco ("Reserve Bank") and other federal financial supervisory agencies. The Board also has reviewed information submitted by First Security about the programs that First Security and Zions have implemented to prepare their systems for the Year 2000, and confidential examination and supervisory information assessing the efforts of the two banking organizations to ensure Year 2000 readiness, both before and after consummation of the proposed transaction.

In evaluating financial factors in expansion proposals by banking organizations, the Board consistently has considered capital adequacy to be especially important.(45) The Board expects banking organizations contemplating expansion to maintain strong capital levels substantially in excess of the minimum levels specified in the Board's Capital Adequacy Guidelines. The Board notes that First Security and Zions and their subsidiary banks are well capitalized and would remain so on consummation of the proposal. The Board has considered that the proposed merger is structured as a stock-for-stock transaction and would not increase the debt service requirements of the combined organization.

The Board also has carefully considered the managerial resources of First Security and Zions and the record of the federal banking agencies in supervising these organizations in light of all the facts of record, including confidential examination and other supervisory information.(46) Based on all the facts of record, the Board concludes that considerations relating to the financial and managerial resources and future prospects of the organizations involved are consistent with approval, as are the other supervisory factors that the Board must consider under section 3 of the BHC Act.(47)

Convenience and Needs Factor

The Board also has carefully considered the effect of the proposal on the convenience and needs of the communities to be served in light of all the facts of record, including comments received on the effect the proposal would have on the communities to be served by the combined organization.(48)

A. CRA Performance Examinations

The Board has long held that consideration of the convenience and needs factor includes a review of the records of the relevant depository institutions under the CRA. As provided in the CRA, the Board evaluates the record of performance of an institution in light of examinations by the appropriate federal supervisors of the CRA performance records of the relevant institutions. An institution's most recent CRA performance evaluation is a particularly important consideration in the applications process because it represents a detailed, on-site evaluation of the institution's overall record of performance under the CRA by its appropriate federal supervisor.(49)

All of First Security's subsidiary banks received either "outstanding" or "satisfactory" ratings at the most recent examinations of their CRA performance. In particular, First Security Bank, N.A., Ogden, Utah ("First Security Bank"), which represents approximately 76 percent of the assets controlled by First Security and is First Security's lead bank, received an "outstanding" rating from the OCC, as of June 30, 1996 (the "First Security Examination").(50) All the subsidiary banks of Zions also received either "outstanding" or "satisfactory" ratings at their most recent CRA examinations. In particular, Zions First National Bank, Salt Lake City, Utah ("Zions Bank"), which is Zions' lead bank and represents approximately 37 percent of the assets controlled by Zions, received an "outstanding" rating from the OCC at its most recent examination, as of July 25, 1997 (the "Zions Examination").(51)

Examiners found no evidence of prohibited discrimination or other illegal

credit practices at First Security Bank or Zions Bank and identified no violations of fair lending laws. Examiners also reviewed the assessment areas delineated by the depository institutions and found that these assessment areas were reasonable and did not arbitrarily exclude low- to moderate-income ("LMI") areas.

B. First Security's CRA Performance Record

In the First Security Examination, examiners found that the bank demonstrated an excellent response to the primary credit needs of its communities.(52) Examiners noted that the bank responded to its communities' credit needs by providing conventional and government-insured real estate mortgages, home improvement loans, farm loans, small business loans, and government-guaranteed student loans. Examiners also concluded that the bank originated a high volume of loans in its delineated communities. From January 1, 1995, through June 30, 1996, the period covered by the examination ("assessment period"), First Security Bank extended 93 percent (by dollar) of its mortgage loans and 82 percent (by dollar) of its small business and farm loans in its delineated communities.

Moreover, examiners noted that the bank's loan-to-deposit ratio was 106 percent, as of June 30, 1996, which was substantially above the peer bank's average of 90 percent; and that the bank extended a significant volume of mortgage loans relative to the bank's resources, market competition, and the credit needs of the community. Examiners indicated that the bank originated more than $275 million of government-insured mortgages in Utah and Idaho during the assessment period.(53) In addition, during 1997 and 1998, First Security Bank made more than 2,160 HMDA-reportable loans, totaling approximately $117 million, to LMI borrowers in the Metropolitan Statistical Area ("MSA") portions of its Utah assessment areas, representing approximately 27 percent of all HMDA-reportable loans made by First Security in such areas.

Examiners also noted that the bank's volume of small business and farm loans originated during the assessment period was high. As of June 30, 1996, the bank had outstanding $700 million in small business loans; small business and farm loans represented more than 10 percent of the bank's total outstanding loan portfolio. The bank also made 385 Small Business Administration ("SBA") loans, totaling $53.2 million, during the assessment period, and had preferred lender status with the SBA. In addition, during 1997 and 1998, First Security Bank originated approximately 5,800 small business and small farm loans, totaling approximately $560 million, in its Utah assessment areas; and more than 80 percent of the small business loans of First Security Bank were made to businesses with less than $1 million in annual revenues, and approximately 22 percent were made to businesses in LMI census tracts.

The First Security Examination also indicated that the bank demonstrated a strong commitment to direct and indirect community development. Examiners stated that the bank had taken a leadership role in 19 community development projects from September 1994 to June 1996, which resulted in the construction of 706 new LMI housing units in Idaho and Utah. In Idaho, the bank was one of ten financial institutions participating in the Idaho Community Reinvestment Corporation ("ICRC"), a statewide organization providing housing for LMI persons. Through the ICRC, the bank participated in nine housing projects, which provided a total of 478 new housing units for LMI persons, and provided $2.9 million in loans. The bank also made $3.4 million of debt and equity investments in an 80-unit, low-income housing complex for elderly residents of Salt Lake City and $1.8 million in debt and equity investments in the Oak Park Project, which was developing 142 affordable housing units in Boise, Idaho, in cooperation with the Idaho Housing Agency and the City of Boise.

C. Zions' CRA Performance Record

The Zions Examination reported that Zions Bank had a strong record of ascertaining the credit needs of its communities, including LMI neighborhoods, and had implemented an effective program to meet those credit needs. Examiners noted that the bank had originated a significant volume of mortgage, consumer, and small business loans in its delineated community.(54)

Zions Bank originated more than 11,500 HMDA-reportable loans, totaling approximately $1 billion, in its delineated community during the assessment period.(55) In 1996, 89 percent of its mortgage loans (88 percent by volume) were originated in the bank's delineated community. Examiners indicated that the bank also offered affordable housing products to help meet the needs of LMI individuals, including the Federal National Mortgage Association ("FNMA")'s "Good Neighbor" Loan Program, several Department of Housing and Urban Development Native American loan programs, the FNMA Rural Housing Direct Leveraging Program, the FNMA Fixed Term Community Home Improvement Loan, and the FNMA Fixed Term Home Improvement Loan. Down payments and underwriting criteria for these programs were generally more flexible than for conventional mortgage products.(56) Examiners further noted that Zions Bank was an active participant in Federal Housing Administration, Veterans Administration, Utah Housing Finance Authority, and other government-insured real estate lending programs. In addition, examiners indicated that the bank had been a significant provider of mortgage loans to LMI individuals.

Zions Bank has remained an active mortgage lender to LMI individuals since the Zions Examination. During 1997 and 1998, Zions Bank made more than 2,140 HMDA-reportable loans, totaling approximately $146 million, to LMI borrowers in the MSA portions of the bank's Utah assessment area, representing approximately 23 percent of all HMDA-reportable loans made by Zions Bank in such areas.

In 1996, Zions Bank originated approximately 1,960 small business loans, totaling $199 million. Small business loans represented 26 percent (by number) and 46 percent (by dollar volume) of the total commercial loans originated by the bank during 1996. Seventy-eight percent of the bank's 1996 small business loans were in amounts of less than $100,000. In addition, more than 98 percent of the bank's small business loans in 1996 were originated in its delineated community. In 1996, Zions Bank originated 583 farm loans, totaling $27.4 million. Of these loans, 542 (93 percent by number) and $24.4 million (89 percent by dollar volume) were to small farms. The bank also was an active participant in SBA lending programs. Examiners noted that the percentage of the bank's small business loans in LMI census tracts compared favorably with the distribution of LMI census tracts in the bank's community.

Zions Bank also has extended a significant number of small business and small farm loans since the Zions Examination. First Security has indicated that, during 1997 and 1998, Zions Bank originated approximately 13,500 small business and small farm loans, totaling $1.38 billion; and from August 1, 1997, to December 31, 1998, more than 76 percent of the small business loans of the bank were in amounts of $100,000 or less, and approximately 26 percent were made to businesses in LMI census tracts.

The Zions Examination also concluded that Zions Bank was a leader in providing community development loans, investments, grants, and services to its delineated community. Examiners noted, in particular, that the bank made approximately $800,000 in loans and committed more than $700,000 in low-income housing tax credits to Blue Mountain Dine, a project designed to build 20 modular housing units for elderly low-income Native Americans not residing on the reservation. The bank also invested $389,000 in Crimson Court and $468,000 in Washington Mill, two low-income housing projects in Provo and Park City, Utah, respectively. In addition, the bank had invested $4 million through mid-1997 in Wasatch Venture Capital Corporation, a small business investment company formed by the bank to provide loans to start-up companies.

First Security and Zions have banks that operate in various other states, including Arizona, California, Colorado, Nevada, New Mexico, Oregon, Washington, and Wyoming. The banking assets of First Security and Zions in these states are small compared to their total banking assets.(57) Examinations of the CRA performance of the subsidiary banks of First Security and Zions operating in these states found no evidence of prohibited discrimination or other illegal credit practices.(58)

D. HMDA Data

The Board also has considered First Security's and Zions' lending record in light of comments regarding the HMDA data of the organizations' subsidiaries.(59) The 1997 and 1998 data indicate that First Security Bank originated a larger percentage of its housing-related loans in the MSA portions of its Utah assessment area to LMI individuals and residents of minority census tracts than did Utah lenders in the aggregate.(60) The 1997 and 1998 data also indicate that Zions Bank denied a smaller percentage of housing-related applications received from African Americans, LMI individuals, and residents of LMI census tracts than did lenders in the aggregate in Utah. The 1998 data further demonstrate that Zions Bank-CA originated a larger percentage of its housing-related loans in its assessment area to LMI individuals than did California lenders in the aggregate.

In other respects, however, the data may reflect certain disparities in the rates of loan applications, originations, and denials by racial group and income level.(61) The Board is concerned when the record of an institution indicates disparities in lending, and believes that all banks are obligated to ensure that their lending practices are based on criteria that ensure not only safe and sound lending, but also equal access to credit by creditworthy applicants regardless of their race or income level. The Board recognizes that HMDA data alone provide an incomplete measure of an institution's lending in its community because these data cover only a few categories of housing-related lending. HMDA data, moreover, provide only limited information about the covered loans.(62) HMDA data, therefore, have limitations that make them an inadequate basis, absent other information, for concluding that an institution has not adequately assisted in meeting its community's credit needs or has engaged ill illegal lending discrimination.

Because of the limitations of HMDA data, the Board has considered these data carefully in light of other information. As noted above, examiners found no evidence of prohibited discrimination or other illegal credit practices at the subsidiary banks of First Security and Zions at their most recent completed examinations. Examiners reviewed the fair lending policies and procedures of the banks and found the policies and procedures to be comprehensive and appropriate for monitoring compliance with fair lending laws. The Board also has considered the HMDA data in light of First Security's and Zions' lending records, which show that the organizations' subsidiary banks assist significantly in helping to meet the credit needs of their communities, including LMI areas.

E. Branch Closings

A commenter expresses concern about branch closings in connection with the proposal. First Security has indicated that there may be some branch closings as a result of the proposed merger, which it expects to be limited to locations in California, Idaho, Nevada, and Utah where both First Security and Zions currently operate branches. First Security has submitted preliminary and confidential information concerning branches that are under consideration for closure in the four states, but has indicated that the plans are subject to change.

The Board has carefully considered the public comments regarding the potential branch closings in light of all the facts of record, including the preliminary branch closing information provided by First Security. The Board also has carefully considered the branch closing policies of First Security and Zions and the record of the institutions in opening and closing branches, as well as the review by examiners of the organizations' implementation of their policies.

The branch closing policies of First Security Bank and Zions Bank require that the bank's board of directors approve all branch closings. Both branch closing policies also require that the bank, before any decision to close a branch, consider whether the closing would have an adverse impact on the community and explore alternative solutions to the branch closing. The policies also require the bank to solicit the views of community leaders to the extent that the closing may have an adverse community impact.

Examiners reviewed the branch closing policies and records of opening and closing branches of First Security Bank and Zions Bank during the First Security Examination and the Zions Examination. Examiners of First Security Bank found that the bank had a good record of opening and closing branches in Idaho and Utah. Examiners of Zions Bank noted that the bank had not closed an office since 1990 and concluded that the bank had a very good record of opening offices, and that the bank's branches were readily accessible to all segments of its delineated community.

The Board also notes that federal banking law provides a specific mechanism for addressing branch closings. Federal law requires an insured depository institution to provide notice to the public and to the appropriate federal regulatory agency at least 30 days before closing a branch.(63) The law does not authorize federal regulators to prevent the closing of any branch. Any branch closings resulting from the proposed transaction will be considered by the appropriate federal supervisor at the next CRA examination of the relevant subsidiary bank.

To permit the Board to monitor the effectiveness of the branch closing policies of First Security and Zions, the Board conditions its action on this proposal on the requirement that First Security report to the Federal Reserve System semiannually during the two-year period after consummation all branch closings, including consolidations, that occur as a result of this proposal. For branches closed in LMI census tracts, First Security should indicate the proximity of the closed branch to the closest branch of First Security and the steps that First Security took to mitigate the impact of the branch closure.

F. Conclusion on Convenience and Needs

The Board has carefully considered all the facts of record,(64) including the public comments received, responses to the comments, and the CRA performance records of the subsidiary banks of First Security and Zions, in reviewing the proposal's effect on the convenience and needs of the communities to be served by the combined organization.(65) In connection with the proposal, First Security has indicated that it does not intend to make any changes in the CRA policies or programs of either organization's banks.

Based on a review of the entire record, and for the reasons discussed above, the Board concludes that convenience and needs considerations, including the CRA performance records of the subsidiary banks of First Security and Zions, are consistent with approval of the proposal.(66)

Nonbanking Activities

First Security also has filed notice under section 4(c)(8) of the BHC Act to acquire the nonbank subsidiaries of Zions. Through these subsidiaries, First Security would engage in a number of nonbanking activities, including acting as a general insurance agent; acting as a principal, agent, or broker for credit-related insurance; and data processing and transmission activities.(67) The Board has determined by regulation or order that the types of activities for which notice has been provided are closely related to banking for purposes of section 4(c)(8) of the BHC Act.(68)

In order to approve a notice under section 4(c)(8) of the BHC Act, the Board also must determine that the acquisition of the nonbank subsidiaries of Zions and the performance of the proposed activities by First Security are a proper incident to banking; that is, the Board must determine that the proposed transaction "can reasonably be expected to produce benefits to the public ... that outweigh possible adverse effects, such as undue concentration of resources, decreased or unfair competition, conflicts of interests, or unsound banking practices.(69)

As part of its evaluation of these factors, the Board considers the financial condition and managerial resources of the notificant and its subsidiaries, including the companies to be acquired, and the effect of the proposed transaction on those resources. For the reasons noted above, and based on all the facts of record, the Board has concluded that financial and managerial considerations are consistent with approval of the notice.

The Board also has considered the competitive effects of the proposed acquisition by First Security of the nonbanking subsidiaries of Zions. Each of the markets in which the nonbanking subsidiaries of First Security and Zions compete is unconcentrated, and there are numerous providers of each of these services. As a result, the Board expects that consummation of the proposal would have a de minimus effect on competition for these services. Based on all the facts of record, the Board concludes that it is unlikely that significantly adverse competitive effects would result from the nonbanking acquisitions proposed in this transaction.

First Security has indicated that the proposed transaction would create a stronger organization with enhanced earnings potential. First Security also has represented that the combined organization would have an increased capacity to serve its customers' credit needs and would be able to provide retail and business customers a broader range of products and services with a more efficient and comprehensive delivery system. In addition, there are public benefits to be derived from permitting capital markets to operate so that bank holding companies can make potentially profitable investments in nonbanking companies and from permitting banking organizations to allocate their resources in the manner they consider to be most efficient when such investments and actions are consistent, as in this case, with the relevant considerations under the BHC Act.

The Board also believes that the conduct of the proposed nonbanking activities within the framework of Regulation Y and Board precedent is not likely to result in any significant adverse effects, such as undue concentration of resources, decreased or unfair competition, conflicts of interests, or unsound banking practices, and that any adverse effects would be outweighed by the public benefits of the proposal, such as increased customer convenience and gains in efficiency. Accordingly, based on all the facts of record, the Board has determined that the balance of public interest factors that the Board must consider under the proper incident to banking standard of section 4(c)(8) of the BHC Act is favorable and consistent with approval.

Conclusion

Based on the foregoing, the Board has determined that the transaction should be, and hereby is, approved.(70) In reaching its conclusion, the Board has considered all the facts of record in light of the factors that it is required to consider under the BHC Act and other applicable statutes.(71) The Board's approval is specifically conditioned on compliance by First Security with all the commitments made in connection with this application and notice, including the commitments discussed in this order, and the conditions set forth in this order and the above-noted Board regulations and orders. The Board's approval of the nonbanking aspects of the proposal also is subject to all the conditions set forth in Regulation Y, including those in sections 225.7 and 225.25(c) of Regulation Y (12 C.F.R. 225.7 and 225.25(c)), and to the Board's authority to require such modification or termination of the activities of a bank holding company or any of its subsidiaries as the Board finds necessary to ensure compliance with, and to prevent evasion of, the provisions of the BHC Act and the Board's regulations and orders issued thereunder. These commitments and conditions are deemed to be conditions imposed in writing by the Board in connection with its findings and decision and, as such, may be enforced in proceedings under applicable law.

The acquisition of the subsidiary banks of Zions may not be consummated before the fifteenth calendar day after the effective date of this order, and the proposal may not be consummated later than three months after the effective date of this order, unless such period is extended for good cause by the Board or by the Reserve Bank, acting pursuant to delegated authority.

By order of the Board of Governors, effective December 13, 1999.

Voting for this action: Chairman Greenspan and Governors Kelley, Meyer, and Gramlich. Absent and not voting: Vice Chairman Ferguson.

ROBERT DEV. FRIERSON Associate Secretary of the Board

(1.) Zions controls the following subsidiary banks: Zions First National Bank, Salt Lake City, Utah; National Bank of Arizona, Phoenix, Arizona; California Bank & Trust, La Jolla, California ("Zions Bank-CA"); Vectra Bank Colorado, N.A., Denver, Colorado; Nevada State Bank, Las Vegas, Nevada; and The Commerce Bank of Washington, N.A., Seattle, Washington. First Security proposes to acquire Zions by merging Zions with and into First Security.

(2.) The nonbanking activities in which Zions engages and for which First Security has sought Board approval under section 4 of the BHC Act are listed in Appendix A.

(3.) Several commenters contend that First Security provided insufficient notice of the proposed transaction to the residents of certain Utah towns; residents of rural Arizona, Colorado, Nevada, and Washington; and residents of the states of Idaho and New Mexico. One commenter asks the Board to require First Security to publish notice of the transaction in every banking market affected by the transaction. The Board requires a bank holding company that proposes to merge with another bank holding company to publish notice of the proposal in a newspaper of general circulation in the communities containing the head office of the largest subsidiary bank of the applicant and the head office of each bank to be acquired by the applicant. 12 C.F.R. 262.3(b)(1)(ii)(E). The record indicates that First Security has complied with the Board's rules relating to publication.

(4.) First Security and Zions also have acquired an option to acquire up to 19.9 percent of each other's voting shares. The options would expire on consummation of the proposal and would not be exercisable by First Security or Zions without Board approval.

(5.) Asset data are as of June 30, 1999, and ranking data are as of December 31, 1998.

(6.) Deposit data are as of June 30, 1998, adjusted to reflect subsequent mergers and acquisitions. In this context, depository institutions include commercial banks, savings banks, and savings associations. insured depository institutions in Idaho. The state deposit cap contained in section 3(d) does not apply, however, if a transaction that exceeds the cap is approved by the appropriate state bank supervisor. In this case, the Idaho state bank supervisor has approved the transaction, and, consequently, the state deposit cap contained in section 3(d) does not prevent the Board from approving the transaction. All other requirements of section 3(d) of the BHC Act would be met on consummation of the proposal. zzzz (12.) 12 U.S.C. [sections] 1842(c)(1).

(13.) See Chemical Banking Corporation, 82 Federal Reserve Bulletin 239 (1996) ("Chemical"), and the cases and studies cited therein. The Supreme Court has emphasized that it is the cluster of products and services that, as a matter of trade reality, makes banking a distinct line of commerce. See United States v. Philadelphia National Bank, 374 U.S. 321,357 (1963) ("Philadelphia National"); accord United States v. Connecticut National Bank, 418 U.S. 656 (1974); United States v. Phillipsburg National Bank, 399 U.S. 350 (1969) ("Phillipsburg National").

(14.) See Phillipsburg National, 399 U.S. at 361.

(15.) Elliehausen and Wolken, Banking Markets and the Use of Financial Services by Households, 78 Federal Reserve Bulletin 169 (1992); Elliehausen and Wolken, Banking Markets and the Use of Financial Services by Small- and Medium-Sized Businesses, 76 Federal Reserve Bulletin 726 (1990).

(16.) See, e.g., Sunwest Financial Services, Inc., 73 Federal Reserve Bulletin 463 (1987); Pikeville National Corporation, 71 Federal Reserve Bulletin 240 (1985); Wyoming Bancorporation, 68 Federal Reserve Bulletin 313 (1982), aff'd 729 F. 2d 687 (10th Cir. 1984).

(17.) See Philadelphia National, 374 U.S. at 357; Phillipsburg National; First Union Corporation, 84 Federal Reserve Bulletin 489 (1998); Chemical; St. Joseph Valley Bank, 68 Federal Reserve Bulletin 673 (1982) ("St. Joseph").

(18.) See Chemical; Crestar Bank, 81 Federal Reserve Bulletin 200, 201 n.5 (1995); Pennbancorp, 69 Federal Reserve Bulletin 548 (1983); St. Joseph.

(19.) A commenter argues that First Security and Zions have a monopoly on automated teller machines at the Salt Lake airport and in shopping malls in northern Utah. As discussed above, consistent with past practices and legal precedents, the Board defines the relevant product market to be the entire cluster of banking products and services and defines the relevant geographic market more broadly than a single building or commercial location.

(20.) An RMA is a privately defined compact geographic area with relatively high population density that is linked by commuting, retail, and wholesale trade patterns.

First Security also argues that, if the Board determines not to combine the Salt Lake, Ogden, and Provo-Orem RMAs, the Board should, at a minimum, combine the Salt Lake and Ogden RMAs for purposes of its competitive analysis. A commenter requests that the Board treat the Salt Lake City, Ogden, and Provo-Orem RMAs as separate banking markets.

(21.) Rand McNally's forthcoming Commercial Atlas and Marketing Guide will exclude the towns of Fruit Heights and Kaysville from the Ogden RMA and include them in the Salt Lake City RMA.

(22.) With respect to each market in which First Security has committed to divest offices to mitigate the anticompetitive effects of the proposal, First Security has committed to execute, before consummation of the acquisition of Zions, sales agreements for the proposed divestitures with a purchaser determined by the Board to be competitively suitable, and to complete the divestitures within 180 days of consummation of the acquisition of Zions. First Security also has committed that, if it is unsuccessful in completing any divestiture within 180 days of consummation, it will transfer the unsold branch(es) to an independent trustee that is acceptable to the Board and will instruct the trustee to sell the branch(es) promptly to one or more alternative purchasers acceptable to the Board. See BankAmerica Corporation, 78 Federal Reserve Bulletin 338 (1992); United New Mexico Financial Corporation, 77 Federal Reserve Bulletin 484 (1991). First Security also has committed to submit to the Board, before consummation of the acquisition of Zions, an executed trust agreement acceptable to the Board stating the terms of these divestitures.

(23.) See 49 Federal Register 26,823 (June 29, 1984). Under the DOJ Guidelines, a market in which the post-merger Herfindahl-Hirschman Index ("HHI") is less than 1000 points is considered to be unconcentrated. The Department of Justice has informed the Board that a bank merger or acquisition generally will not be challenged (in the absence of other factors indicating anticompetitive effects) unless the postmerger HHI is at least 1800 and the merger increases the HHI by more than 200 points. The Department of Justice has stated that the higher than normal HHI thresholds for screening bank mergers for anticompetitive effects implicitly recognize the competitive effects of limitedpurpose lenders and other nondepository financial entities.

(24.) These banking markets are discussed in Appendix D.

(25.) See NationsBank Corporation, 84 Federal Reserve Bulletin 129 (1998).

(26.) Market concentration calculations include deposits of thrift institutions at 50 percent, except as discussed in the order. The Board previously has indicated that thrift institutions have become, or have the potential to become, significant competitors of commercial banks. See Midwest Financial Group, 75 Federal Reserve Bulletin 386 (1989): National City Corporation, 70 Federal Reserve Bulletin 743 (1984). Thus, the Board has regularly included thrift deposits in the calculation of market share on a 50-percent weighted basis. See, e.g., First Hawaiian, Inc., 77 Federal Reserve Bulletin 52 (1991).

(27.) The Board previously has indicated that it may consider the competitiveness of a savings association at a level greater than 50 percent of the savings association's deposits, if appropriate. See Banknorth Group, Inc., 75 Federal Reserve Bulletin 703 (1989). After the proposed merger and divestiture, and after taking into account the deposits controlled by this thrift, First Security would control 45.9 percent of market deposits, and the HHI would increase by no more than 713 points to a level that would not exceed 2529 points.

(28.) A commenter contends that the Board should not include the deposits of any credit union in its antitrust analysis.

First Security also contends that the Board should include certain Utah-chartered industrial loan companies in the Board's structural analysis of the Salt Lake market. A commenter argues that the Board should not include these companies in its analysis. The Board's use of a 200-point increase in the HHI as a threshold in its competitive analysis, rather than a lower level, reflects in part the competitive influence of financial institutions other than banks. Because industrial loan companies in Utah are primarily credit card institutions, take few demand deposits, and generally do little lending in the local market, the Board has determined not to include these companies more specifically in calculating market concentration in this case.

(29.) Credit unions account for approximately 21 percent of total deposits in the market.

(30.) Thirty-four credit unions compete with banks in the market. Although these credit unions are a competitive force, the Board has not considered them to be full competitors of banks because they do not provide the full range of banking products and services. If the Board were to include the deposits of these 34 credit unions in the market and weight them at 50 percent, the HHI for the Salt Lake market would increase by no more than 571 points to 2036, and First Security would have a post-merger market share of approximately 41 percent.

(31.) One commenter contends that the Board should not exclude any such deposits.

(32.) The categories of deposits that First Security proposes to exclude are deposits relating to mortgage escrow accounts, correspondent banking accounts, certificates of deposit ("CD's) in amounts greater than $100,000, brokered CDs, trust accounts, and out-of-market commercial and retail accounts.

(33.) Firms ranked third through seventh in the market are large organizations headquartered in other states that would be unlikely to have any out-of-market deposits booked in the Salt Lake market. The largest firm, other than First Security and Zions, with its headquarters in the market controls only 2.5 percent of market deposits.

(34.) Exclusion of out-of-market deposits from an analysis of the competitive strength of an organization in the market where the deposits are maintained would incorrectly suggest that these deposits are unavailable to support the organization's activities in the market. It would also lead to the anomaly that certain types of out-of-market deposits are not counted in any part of the competitive analysis even though these deposits are available to support banking activities anywhere.

(35.) If government trust, mortgage escrow, and correspondent banking deposits originated by First Security and Zions outside Utah but held in the Salt Lake market were excluded from market calculations, the HHI for the market would increase by no more than 523 points to a level that does not exceed 1927.

(36.) As in the Salt Lake market and for the same reasons, competition from one savings association operating in the Ogden market closely approximates competition from commercial banks in the market. Accordingly, the Board has weighted deposits controlled by this organization at 100 percent in calculating market concentration under the DOJ Guidelines.

(37.) If the deposits of these credit unions were included in market share calculations at 50 percent, the HHI for the Ogden market would increase by no more than 207 points to a level that does not exceed 1612.

(38.) As in the Salt Lake market and for the same reasons, competition from one savings association operating in the Provo-Orem market closely approximates competition from commercial banks in the market. Accordingly, the Board has weighted deposits controlled by this organization at 100 percent in calculating market concentration under the DOJ Guidelines.

(39.) If First Security were to divest the relevant Provo-Orem branches to an out-of-market firm, the HHI would increase by 195 points to 2286.

(40.) If the deposits of these credit unions were included in market share calculations at 50 percent, the HHI for the Provo-Orem market would increase by no more than 254 points to a level that does not exceed 2082. Credit unions without the characteristics discussed above control approximately 12 percent of market deposits.

(41.) If First Security were to divest the relevant St. George branches to an out-of-market firm, the HHI would increase by 25 points to 3171.

(42.) If the deposits of these credit unions were included in market share calculations at 50 percent, the HHI for the St. George market would increase by no more than 250 points to a level that does not exceed 2709.

(43.) These banking markets are discussed in Appendix C.

(44.) Several commenters express concerns about the financial and managerial resources of First Security and Zions. The comments include contentions that the financial strength of Vectra Bank Colorado, N.A., has declined since its acquisition by Zions and that the merger would add an unresponsive layer of management above Vectra Bank. Another commenter alleges that an officer of Zions may have violated the insider trading rules of the Securities and Exchange Commission ("SEC"), and that comment was sent to the SEC.

(45.) See Banc One Corporation, 84 Federal Reserve Bulletin 961 (1998).

(46.) Commenters express dissatisfaction with an alleged lack of diversity in the current staff and management of First Security and Zions. The racial and gender composition of staff and management are not factors the Board is authorized to consider under the BHC Act.

(47.) Commenters note that First Security and Zions are defendants in several pending judicial proceedings. There has been no adjudication of wrongdoing by First Security or Zions in any of these matters, and each matter currently is pending before a forum that can provide the plaintiffs adequate redress if their allegations can be sustained.

(48.) One commenter opposes the proposal based in part on an unfavorable experience with First Security Bank in a particular business dealing and on a belief that the merger would reduce the amount of capital available to small businesses. The Board has reviewed this comment in light of all the facts of record, including the records of First Security and Zions of assisting to meet the credit needs of small businesses. The Board also has provided a copy of this comment to the OCC, the primary federal supervisor of First Security Bank.

(49.) See Interagency Questions and Answers Regarding Community Reinvestment, 64 Federal Register 23,618 and 23,641 (1999).

(50.) First Security Bank of New Mexico, N.A., Albuquerque, New Mexico, received an "outstanding" CRA performance rating from the OCC, as of December 6, 1995: and First Security Bank of Nevada, Las Vegas, Nevada, received a "satisfactory" CRA rating from the Reserve Bank, as of January 11, 1999. Although First Security Bank of California, N.A., West Covina, California, has not yet been examined for CRA performance, its two predecessor banks received "satisfactory" CRA performance ratings from their appropriate federal financial supervisory agency: California State Bank, West Covina, California, received a "satisfactory" CRA performance rating from the FDIC, as of July 22, 1996; and Marine National Bank, Irvine, California, received a "satisfactory" CRA performance rating from the OCC, as of September 6, 1996.

(51.) Nevada State Bank received an "outstanding" CRA performance rating from the FDIC, as of May 17, 1999; National Bank of Arizona received a "satisfactory" rating from the OCC, as of May 3, 1999; Vectra Bank received an "outstanding" CRA rating from the Federal Reserve Bank of Kansas City, as of September 30, 1996; and The Commerce Bank of Washington, N.A., received a "satisfactory" CRA rating from the OCC, as of June 25, 1996. Although Zions Bank-CA has not yet been examined for CRA performance, all its predecessor banks received "satisfactory" CRA performance ratings from their appropriate federal financial supervisory agency: Grossmont Bank, San Francisco, California, received a "satisfactory" CRA performance rating from the FDIC, as of August 28, 1996; First Pacific National Bank, Escondido, California, received a "satisfactory" CRA performance rating from the OCC, as of October 31, 1996; Sumitomo Bank of California, San Francisco, California, received a "satisfactory" CRA performance rating from the FDIC, as of September 12, 1996; and Regency Bank, Fresno, California, received a "satisfactory" CRA performance rating from the Reserve Bank, as of February 16, 1999.

(52.) In the First Security Examination, examiners also considered the loan originations of Crossland Mortgage Company, a subsidiary of First Security Bank.

(53.) First Security Bank is an active participant in the Utah and Idaho Housing Finance Agency programs. In both states, the bank is the largest participating lender by dollar and number of loans. During the assessment period, the bank originated $85 million through the Utah Housing Finance Agency and $42 million through the Idaho Housing Finance Agency.

(54.) The lending activities of Zions Mortgage Company, at the time a subsidiary of Zions Bank, were also considered by the examiners who conducted the Zions Examination.

(55.) The Zions Examination reviewed Zions Bank's activities during 1995, 1996, and through July 25, 1997. During this period, the bank's assessment area consisted of the entire state of Utah.

(56.) Zions Bank also initiated a consumer loan program designed for LMI persons. The program extends loan maturities by up to 12 months and employs more flexible underwriting standards.

(57.) Although First Security and Zions have a sizable presence in California, both companies are relatively new entrants to the state. First Security entered the state in 1998, and Zions entered the state in 1997. Their California bank subsidiaries have not yet been examined for CRA performance.

(58.) Examiners found substantive violations of HMDA's reporting provisions at Sumitomo Bank of California in 1996, but Zions did not acquire Sumitomo Bank until 1998.

(59.) Some commenters note that First Security made a lower percentage of its home purchase and refinance loans in minority census tracts than did Utah lenders in the aggregate. Another commenter states that the disparity ratios for home purchase loan denials of Zions Bank-CA with respect to low-income and minority applicants in one particular county significantly exceeded those of its competitors.

(60.) The aggregate represents the cumulative lending for all institutions that have reported HMDA data in a given market.

(61.) For instance, First Security Bank's housing-related loans to African Americans in its Utah assessment area in 1998, as a percentage of its total mortgage lending in such area, was slightly below the aggregate, and the percentage of Zions Bank's housing-related loans originated in minority and LMI census tracts in its Utah assessment area in 1998 also was below the aggregate.

(62.) The data, for example, do not account for the possibility that an institution's outreach efforts may attract a larger proportion of marginally qualified applicants than other institutions attract and do not provide a basis for an independent assessment of whether an applicant who was denied credit was, in fact, creditworthy. Credit history problems and excessive debt levels relative to income (reasons most frequently cited for a credit denial) are not available from HMDA data.

(63.) Section 42 of the Federal Deposit Insurance Act (12 U.S.C. [sections] 183 l r-1), as implemented by the Interagency Policy Statement on Branch Closings (64 Federal Register 34,844 (1999)), requires that a bank provide the public with at least 30 days notice and the appropriate federal supervisory agency with at least 90 days notice before the date of the proposed branch closing. The bank also is required to provide reasons and other supporting data for the closure, consistent with the institution's written policy for branch closings.

(64.) One commenter requests that the Board condition its approval of the proposal on First Security's making certain community reinvestment and other commitments. The Board notes that the CRA requires only that, in considering an acquisition proposal, the Board carefully review the actual record of performance of the relevant depository institutions in helping to meet the credit needs of their communities. The CRA does not require depository institutions to make pledges as to future performance under the CRA. The Board also notes that the future activities of First Security's subsidiary banks will be reviewed by the appropriate federal supervisors in future performance examinations, and such CRA performance records will be considered by the Board in any subsequent applications by First Security to acquire a depository institution.

(65.) Several commenters express concern that the merger of First Security and Zions would result in the loss of jobs. The effect of a proposed transaction on employment in a community is not among the factors included in the BHC Act, and the convenience and needs factor has been consistently interpreted by the federal banking agencies, the courts, and the Congress to relate to the effect of a proposal on the availability and quality of banking services in the community. See Wells Fargo & Company, 82 Federal Reserve Bulletin 445, 457 (1996).

(66.) A few commenters express concern that the proposal would result in the loss of jobs. The effect of a proposed transaction on employment in a community is not among the factors included in the BHC Act, and the convenience and needs factor has been consistently interpreted by the federal banking agencies, the courts, and Congress to relate to the effect of a proposal on the availability and quality of banking services in the community. See Wells Fargo & Company, 82 Federal Reserve Bulletin 445, 457 (1996).

(67.) First Security currently engages in insurance activities grand-fathered under section 4(c)(8)(G) of the BHC Act (12 U.S.C. [sections]1843(c)(8)(G)) ("Exemption G"). First Security would be the legal entity surviving the merger with Zions and, based on the structure of the transaction and all of the other facts of this case, the Board has determined that First Security would retain its exemption to engage in Exemption G activities after consummation of the proposed merger.

(68.) See 12 C.F.R. 225.28(b)(11)(i) and (vii) and (14).

(69.) 12 U.S.C.[sections]1843(c)(8).

(70.) Several commenters requested that the Board hold a public meeting or hearing on the proposal. Section 3(b) of the BHC Act does not require the Board to hold a public hearing on an application unless the appropriate supervisory authority for the bank to be acquired makes a timely written recommendation of denial of the application. The Board has not received such a recommendation from the appropriate supervisory authorities.

Under its rules, the Board also may, in its discretion, hold a public meeting or hearing on an application to acquire a bank if a meeting or hearing is necessary or appropriate to clarify factual issues related to the application and to provide an opportunity for testimony. 12 C.F.R. 225.16(e). Section 4 of the BHC Act and the Board's rules thereunder provide for a hearing on a notice to acquire nonbanking companies if there are disputed issues of material fact that cannot be resolved in some other manner. 12 U.S.C.[sections]1843(c)(8); 12 C.F.R. 225.25(a)(2). The Board has considered carefully these commenters' requests in light of all the facts of record. In the Board's view, commenters have had ample opportunity to submit their views, and they submitted written comments that have been considered carefully by the Board in acting on the proposal. The commenters' requests fail to demonstrate why their written comments do not present their evidence adequately and fail to identify disputed issues of fact that are material to the Board's decision that would be clarified by a public meeting or hearing. For these reasons, and based on all the facts of record, the Board has determined that a public meeting or hearing is not required or warranted in this case. Accordingly, the requests for a public meeting on the proposal are denied.

(71.) A number of commenters have requested that the Board delay action or extend the comment period on the proposal. The Board has accumulated a significant record in this case, including reports of examination, supervisory information, public reports and information, and considerable public comment. In the Board's view, for the reasons discussed above, commenters have had ample opportunity to submit their views and, in fact, have provided substantial written submissions that have been considered carefully by the Board in acting on the proposal. Moreover, the BHC Act and Regulation Y require the Board to act on proposals submitted under those provisions within certain time periods. Based on a review of all the facts of record, the Board concludes that the record in this case is sufficient to warrant Board action at this time, and that further delay of consideration of the proposal, extension of the comment period, or denial of the proposal on the grounds discussed above or on the basis of informational insufficiency is not warranted.

Appendix A

Nonbanking Subsidiaries of Zions Bancorporation

(1) Zions Life Insurance Company, Salt Lake City, Utah, and thereby engage in underwriting credit-related insurance, in accordance with section 225.28(b)(11)(i) of Regulation Y (12 C.F.R. 225.28(b)(11)(i));

(2) Zions Insurance Agency, Inc., Salt Lake City, Utah, and thereby engage in insurance agency activities, in accordance with section 225.28(b)(11)(vii) of Regulation Y (12 C.F.R. 225.28(b)(11)(vii)); and

(3) Cash Access, Inc., Salt Lake City, Utah, and thereby engage in data processing and transmission activities through the leasing, installing, and servicing of automated teller machines, in accordance with section 225.28(b)(14) of Regulation Y (12 C.F.R. 225.28(b)(14)).

Appendix B

Banking Markets in which First Security and Zions Directly Compete

A. California Banking Markets

Los Angeles: Los Angeles Ranally Metropolitan Area ("RMA") and the towns of Rancho Santa Margarita and Rosamond.

Riverside-San Bernardino: Riverside-San Bernardino RMA and the towns of Banning, Beaumont, and Nuevo.

B. Idaho Banking Markets

Blackfoot: The town of Blackfoot.

Boise: Boise RMA and the towns of Emmett, Homedale, Marsing, Parma, and Wilder.

Bonners Ferry: The town of Bonners Ferry.

Burley: The towns of Albion, Burley, Paul, and Rupert.

Idaho Falls: Idaho Falls RMA and the towns of Shelley and Ririe.

Lewiston: Lewiston RMA.

Montpelier: The towns of Montpelier and Paris.

Moscow-Pullman: The town of Moscow, Idaho; and the towns of Colfax, Palouse, and Pullman, Washington.

Ontario: The towns of Fruitland, New Plymouth, Payette, and Weiser, Idaho; and the towns of Nyssa, Ontario, and Vale, Oregon.

Pocatello: Pocatello RMA.

Twin Falls: The towns of Buhl, Filer, Gooding, Hagerman, Hazelton, Jerome, Kimberly, Richfield, Shoshone, Twin Falls, and Wendell.

C. Nevada Banking Markets

Carson City: The towns of Carson City, Dayton, Gardnerville, Minden, and Virginia City.

Las Vegas: Las Vegas RMA.

Reno: Reno RMA and the town of Fernley.

D. Utah Banking Markets

Box Elder: The towns of Brigham City and Trementon.

Cedar City: The towns of Cedar City and Parowan.

Delta: The towns of Delta and Fillmore.

Ephraim: The towns of Ephraim, Gunnison, Manti, Mt. Pleasant, and Moroni.

Logan: Logan RMA and the towns of Lewiston and Richmond, Utah; and the town of Preston, Idaho.

Moab: The town of Moab.

Monticello: The towns of Blanding and Monticello, Utah; and the town of Dove Creek, Colorado.

Ogden: Ogden RMA, excluding the towns of Kaysville and Fruit Heights.

Park City: The towns of Coalville, Heber City, Kamas, and Park City.

Price: The towns of Castle Dale, Helper, Huntington, and Price.

Provo-Orem: Provo-Orem RMA.

Richfield: The towns of Monroe, Richfield, and Salina.

Roosevelt: The towns of Altamont, Duchesne, and Roosevelt.

Salt Lake City: Salt Lake City RMA and the towns of Fruit Heights, Grantsville, Kaysville, and Tooele.

St. George: The towns of Hildale, Hurricane, Santa Clara, Springdale, St. George, and Washington, Utah; and the towns of Mesquite and Overton, Nevada.

Vernal: The town of Vernal.

Appendix C

Certain Banking Markets with No Divestitures

A. California Banking Markets

Los Angeles - First Security is the 25th largest depository institution in the market, controlling deposits of $838 million, representing less than 1 percent of market deposits. Zions is the tenth largest depository institution in the market, controlling deposits of $2.1 billion, representing approximately 1.5 percent of market deposits. On consummation of the proposal, First Security would become the ninth largest depository institution in the market, controlling deposits of $3 billion, representing 2.1 percent of market deposits. The HHI would increase 1 point to 1028. Riverside-San Bernardino - First Security is the 23rd largest depository institution in the market, controlling deposits of $32 million, representing less than 1 percent of market deposits. Zions is the 28th largest depository institution in the market, controlling deposits of $23 million, representing less than 1 percent of market deposits. On consummation of the proposal, First Security would become the 19th largest depository institution in the market, controlling deposits of $55 million, representing less than 1 percent of market deposits. The HHI would increase less than 1 point to 1610.

B. Idaho Banking Markets

Blackfoot - First Security is the second largest depository institution in the market, controlling deposits of $38 million, representing approximately 26.9 percent of market deposits. Zions is the sixth largest depository institution in the market, controlling deposits of $4 million, representing approximately 2.5 percent of market deposits. On consummation of the proposal, First Security would remain the second largest depository institution in the market, controlling deposits of $42 million, representing 29.4 percent of market deposits. The HHI would increase 135 points to 3254.

Boise - First Security is the second largest depository institution in the market, controlling deposits of $855 million, representing approximately 27.8 percent of market deposits. Zions is the 13th largest depository institution in the market, controlling deposits of $9 million, representing less than 1 percent of market deposits. On consummation of the proposal, First Security would remain the second largest depository institution in the market, controlling deposits of $864 million, representing 28.1 percent of market deposits. The HHI would increase 17 points to 2671.

Idaho Falls - First Security is the second largest depository institution in the market, controlling deposits of $196 million, representing approximately 25.4 percent of market deposits. Zions is the tenth largest depository institution in the market, controlling deposits of $6 million, representing less than 1 percent of market deposits. On consummation of the proposal, First Security would remain the second largest depository institution in the market, controlling deposits of $202 million, representing 26.2 percent of market deposits. The HHI would increase 39 points to 2022.

Moscow-Pullman - First Security is the second largest depository institution in the market, controlling deposits of $85 million, representing approximately 20.7 percent of market deposits. Zions is the tenth largest depository institution in the market, controlling deposits of $9 million, representing approximately 2.3 percent of market deposits. On consummation of the proposal, First Security would remain the second largest depository institution in the market, controlling deposits of $94 million, representing 23 percent of market deposits. The HHI would increase 94 points to 1575.

Ontario - First Security is the second largest depository institution in the market, controlling deposits of $78 million, representing approximately 16.6 percent of market deposits. Zions is the seventh largest depository institution in the market, controlling deposits of $26 million, representing 5.6 percent of market deposits. On consummation of the proposal, First Security would remain the second largest depository institution in the market, controlling deposits of $105 million, representing 22.2 percent of market deposits. The HHI would increase 185 points to 1747.

Pocatello - First Security is the largest depository institution in the market, controlling deposits of $129 million, representing approximately 36.1 percent of market deposits. Zions is the tenth largest depository institution in the market, controlling deposits of $2 million, representing less than 1 percent of market deposits. On consummation of the proposal, First Security would remain the largest depository institution in the market, controlling deposits of $131 million, representing 36.5 percent of market deposits. The HHI would increase 32 points to 2523.

C. Nevada Banking Markets

Carson City - First Security is the third largest depository institution in the market, controlling deposits of $109 million, representing approximately 12.6 percent of market deposits. Zions is the seventh largest depository institution in the market, controlling deposits of $62 million, representing approximately 7.1 percent of market deposits. On consummation of the proposal, First Security would remain the third largest depository institution in the market, controlling deposits of $171 million, representing 19.7 percent of market deposits. The HHI would increase 179 points to 2024.

Reno - First Security is the seventh largest depository institution in the market, controlling deposits of $105 million, representing approximately 3.5 percent of market deposits. Zions is the fourth largest depository institution in the market, controlling deposits of $395 million, representing approximately 13.2 percent of market deposits. On consummation of the proposal, First Security would become the fourth largest depository institution in the market, controlling deposits of $500 million, representing 16.7 percent of market deposits. The HHI would increase 93 points to 2095.

Appendix D

Certain Banking Markets with Divestitures

A. Idaho Banking Markets

Bonners Ferry - First Security is the largest depository institution in the market, controlling deposits of $40 million, representing approximately 50.2 percent of market deposits. Zions is the third largest depository institution in the market, controlling deposits of $ l 8 million, representing approximately 22.7 percent of market deposits. First Security proposes to divest one branch, controlling deposits of $18 million, to an out-of-market firm. On consummation of the proposal, and after accounting for the proposed divestitures, First Security would remain the largest depository institution in the market, controlling deposits of $40 million, representing 50.2 percent of market deposits. The HHI would remain unchanged at 3769.

Burley - First Security is the second largest depository institution in the market, controlling deposits of $83 million, representing approximately 23 percent of market deposits. Zions is the fifth largest depository institution in the market, controlling deposits of $31 million, representing 8.6 percent of market deposits. First Security proposes to divest one branch, controlling deposits of $31 million, to an out-of-market firm or a competitively suitable in-market firm. On consummation of the proposal, and after accounting for the proposed divestitures, First Security would remain the second largest depository institution in the market, controlling deposits of $83 million, representing 23 percent of market deposits. The HHI would increase by no more than 93 to no more than 2149.

Montpelier - First Security is the largest depository institution in the market, controlling deposits of $36 million, representing approximately 53.6 percent of market deposits. Zions is the second largest depository institution in the market, controlling deposits of $22 million, representing 33.6 percent of market deposits. First Security proposes to divest two branches, controlling deposits of $22 million, to an out-of-market firm. On consummation of the proposal, and after accounting for the proposed divestitures, First Security would remain the largest depository institution in the market, controlling deposits of $36 million, representing 53.6 percent of market deposits. The HHI would remain unchanged at 4164.

Twin Falls - First Security is the largest depository institution in the market, controlling deposits of $369 million, representing approximately 40.1 percent of market deposits. Zions is the seventh largest depository institution in the market, controlling deposits of $18 million, representing approximately 2 percent of market deposits. First Security proposes to divest one branch, controlling deposits of $5 million, to an out-of-market firm or a competitively suitable in-market firm. On consummation of the proposal, and after accounting for the proposed divestiture, First Security would remain the largest depository institution in the market, controlling deposits of $382 million, representing 41.5 percent of market deposits. The HHI would increase no more than 131 points to no more than 2487.

B. Utah Banking Markets

Box Elder - First Security is the largest depository institution in the market, controlling deposits of $123 million, representing approximately 54 percent of market deposits. Zions is the fourth largest depository institution in the market, controlling deposits of $19 million, representing 8.5 percent of market deposits. First Security proposes to divest one branch, controlling deposits of $19 million, to an out-of-market firm or a competitively suitable in-market firm. On consummation of the proposal, and after accounting for the proposed divestitures, First Security would remain the largest depository institution in the market, controlling deposits of $123 million, representing 54 percent of market deposits. The HHI would increase no more than 162 points to no more than 3553.

Cedar City - First Security is the second largest depository institution in the market, controlling deposits of $76 million, representing approximately 34.5 percent of market deposits. Zions is the third largest depository institution in the market, controlling deposits of $46 million, representing 20.8 percent of market deposits. First Security proposes to divest one branch, controlling deposits of $39 million, to an out-of-market firm. On consummation of the proposal, and after accounting for the proposed divestitures, First Security would remain the second largest depository institution in the market, controlling deposits of $84 million, representing 37.9 percent of market deposits. The HHI would increase 118 points to 3739.

Delta - First Security is the largest depository institution in the market, controlling deposits of $54 million, representing approximately 66.3 percent of market deposits. Zions is the second largest depository institution in the market, controlling deposits of $28 million, representing 33.7 percent of market deposits. First Security proposes to divest one branch, controlling deposits of $28 million, to an out-of-market firm. On consummation of the proposal, and after accounting for the proposed divestitures, First Security would remain the largest depository institution in the market, controlling deposits of $54 million, representing 66.3 percent of market deposits. The HHI would remain unchanged at 5529.

Ephraim - First Security is the largest depository institution in the market, controlling deposits of $29 million, representing approximately 24.7 percent of market deposits. Zions is the third largest depository institution in the market, controlling deposits of $27 million, representing 23.4 percent of market deposits. First Security proposes to divest two branches, controlling deposits of $29 million, to an out-of-market firm. On consummation of the proposal, and after accounting for the proposed divestitures, First Security would become the third largest depository institution in the market, controlling deposits of $27 million, representing 23.4 percent of market deposits. The HHI would remain unchanged at 2213.

Logan - First Security is the largest depository institution in the market, controlling deposits of $224 million, representing approximately 34.1 percent of market deposits. Zions is the second largest depository institution in the market, controlling deposits of $204 million, representing 31 percent of market deposits. First Security proposes to divest five branches, controlling deposits of $177.8 million, to an out-of-market firm or a competitively suitable in-market firm. On consummation of the proposal, and after accounting for the proposed divestitures, First Security would remain the largest depository institution in the market, controlling deposits of $250 million, representing 38.1 percent of market deposits. The HHI would increase no more than 172 points to no more than 2564.

Moab - First Security is the largest depository institution in the market, controlling deposits of $50 million, representing approximately 70.3 percent of market deposits. Zions is the second largest depository institution in the market, controlling deposits of $21 million, representing 29.7 percent of market deposits. First Security proposes to divest two branches, controlling deposits of $21 million, to an out-of-market firm. On consummation of the proposal, and after accounting for the proposed divestitures, First Security would remain the largest depository institution in the market, controlling deposits of $50 million, representing 70.3 percent of market deposits. The HHI would remain unchanged at 5826.

Monticello - First Security is the largest depository institution in the market, controlling deposits of $36 million, representing approximately 55.9 percent of market deposits. Zions is the third largest depository institution in the market, controlling deposits of $14 million, representing 21.7 percent of market deposits. First Security proposes to divest two branches, controlling deposits of $14 million, to an out-of-market firm. On consummation of the proposal, and after accounting for the proposed divestitures, First Security would remain the largest depository institution in the market, controlling deposits of $36 million, representing 55.9 percent of market deposits. The HHI would remain unchanged at 4096.

Park City - First Security is the largest depository institution in the market, controlling deposits of $156 million, representing approximately 42.4 percent of market deposits. Zions is the second largest depository institution in the market, controlling deposits of $111 million, representing 30 percent of market deposits. First Security proposes to divest four branches, controlling deposits of $106.6 million, to an out-of-market firm or a competitively suitable in-market firm. On consummation of the proposal, and after accounting for the proposed divestitures, First Security would remain the largest depository institution in the market, controlling deposits of $161 million, representing 43.5 percent of market deposits. The HHI would increase no more than 176 points to no more than 3095.

Price - First Security is the second largest depository institution in the market, controlling deposits of $57 million, representing approximately 24.8 percent of market deposits. Zions is the largest depository institution in the market, controlling deposits of $105 million, representing 45.8 percent of market deposits. First Security proposes to divest three branches, controlling deposits of $57 million, to an out-of-market firm. On consummation of the proposal, and after accounting for the proposed divestitures, First Security would become the largest depository institution in the market, controlling deposits of $105 million, representing 45.8 percent of market deposits. The HHI would remain unchanged at 3054.

Richfield - First Security is the second largest depository institution in the market, controlling deposits of $37 million, representing approximately 24.9 percent of market deposits. Zions is the largest depository institution in the market, controlling deposits of $85 million, representing 56.6 percent of market deposits. First Security proposes to divest two branches, controlling deposits of $37 million, to an out-of-market firm. On consummation of the proposal, and after accounting for the proposed divestitures, First Security would become the largest depository institution in the market, controlling deposits of $85 million, representing 56.6 percent of market deposits. The HHI would remain unchanged at 4007.

Roosevelt - First Security is the largest depository institution in the market, controlling deposits of $61 million, representing approximately 60.5 percent of market deposits. Zions is the second largest depository institution in the market, controlling deposits of $40 million, representing 39.5 percent of market deposits. First Security proposes to divest 2 branches, controlling deposits of $40 million, to an out-of-market firm. On consummation of the proposal, and after accounting for the proposed divestitures, First Security would remain the largest depository institution in the market, controlling deposits of $61 million, representing 60.5 percent of market deposits. The HHI would remain unchanged at 5220.

Vernal - First Security is the largest depository institution in the market, controlling deposits of $65 million, representing approximately 50.5 percent of market deposits. Zions is the second largest depository institution in the market, controlling deposits of $64 million, representing 49.5 percent of market deposits. First Security proposes to divest one branch, controlling deposits of $65 million, to an out-of-market firm. On consummation of the proposal, and after accounting for the proposed divestitures, First Security would become the second largest depository institution in the market, controlling deposits of $64 million, representing 49.5 percent of market deposits. The HHI would remain unchanged at 5001.

HSBC Holdings plc London, United Kingdom

HSBC Finance Netherlands London, United Kingdom

HSBC Holdings BV Amsterdam, Netherlands

Republic New York Corporation New York, New York

Republic National Bank of New York New York, New York

Order Approving Applications to Acquire a Bank Holding Company and to Merge Banks, and Notice to Acquire Nonbanking Companies

HSBC Holdings plc CHSBC"), HSBC Finance Netherlands ("HFN"), and HSBC Holdings BV ("HHBV"), all bank holding companies within the meaning of the Bank Holding Company Act ("BHC Act"), have requested the Board's approval under section 3 of the BHC Act (12 U.S.C. [sections] 1842) to acquire all the voting shares of Republic New York Corporation ("RNYC"), and its wholly owned subsidiary banks, Republic National Bank of New York ("Republic Bank") and Republic Bank California National Association, Beverly Hills, California ("Republic California").(1) HSBC, HFN, and HHBV also have requested the Board's approval under section 4(c)(8) of the BHC Act (12 U.S.C. [sections] 1843(c)(8)) and section 225.24 of the Board's Regulation Y (12 C.F.R. 225.24) to acquire the nonbanking subsidiaries of RNYC and thereby engage in permissible nonbanking activities.(2) Republic Bank has applied under section 18(c) of the Federal Deposit Insurance Act (12 U.S.C. [sections] 1828(c)) (the "Bank Merger Act") to merge with HSBC Bank USA ("HSBC Bank"), a state member bank that is the primary U.S. banking subsidiary of HSBC.(3) In addition, HSBC proposes to acquire the foreign operations and Edge corporations of RNYC pursuant to section 4(c)(13) of the BHC Act (12 U.S.C. [sections] 1843(c)(13)) and section 25A of the Federal Reserve Act (12 U.S.C. [sections] 611 et seq.) and the Board's Regulation K (12 C.F.R. 211), and Republic Bank proposes to acquire the Agreement corporation subsidiary of HSBC Bank pursuant to section 25 of the Federal Reserve Act (12 U.S.C. [sections] 601 et seq.) and Regulation K.(4)

Notice of the proposal, affording interested persons an opportunity to submit comments, has been published (64 Federal Register 35,660 (1999); 64 Federal Register 36,876 (1999)). The time for filing comments has expired, and the Board has considered the proposal and all comments received in light of the factors set forth in sections 3 and 4 of the BHC Act, the Federal Reserve Act, and the Bank Merger Act.

HSBC, with total consolidated assets of $497 billion is the largest banking organization headquartered in the United Kingdom and is the eighth largest banking organization in the world.(5) HSBC operates subsidiary banks in New York State and California that control deposits of $22.1 billion.(6) Three of HSBC's non-U.S, subsidiary banks also maintain branches in the U.S.(7) HSBC, HFN, and HHBV also engage in a broad range of permissible nonbanking activities in the United States through subsidiaries, including underwriting and dealing in debt and equity securities to a limited extent.

RNYC, with total consolidated assets of $51.2 billion, is the 19th largest commercial banking organization in the United States and the sixth largest commercial banking organization in New York State. RNYC operates subsidiary banks in New York State and California that control aggregate deposits of $13.6 billion. RNYC and its subsidiaries also engage in certain permissible nonbanking activities in the United States, including dealing in debt and equity securities to a limited extent.

Factors Governing Board Review of Transaction

The BHC Act sets forth the factors that the Board must consider when reviewing the formation of a bank holding company or the acquisition of banks. These factors are the competitive effects of the proposal in the relevant geographic markets; the financial and managerial resources and future prospects of the companies and banks involved in the proposal; the convenience and needs of the community to be served, including the records of performance under the Community Reinvestment Act (12 U.S.C. [sections] 2901 et seq.) ("CRA") of the insured depository institutions involved in the transaction; the availability of information needed to determine and enforce compliance with the BHC Act and other applicable federal banking law; and, in the case of applications involving a foreign bank, whether the foreign bank is subject to comprehensive supervision or regulation on a consolidated basis by its home country supervisor. In cases involving interstate bank acquisitions, the Board also must consider the concentration of deposits in the nation and relevant individual states, and compliance with other provisions of section 3(d) of the BHC Act.

The Board has considered these factors in light of a comprehensive record that includes information provided by HSBC, confidential supervisory and examination information, and publicly reported financial and other information. The Board also has considered information collected from the primary home country supervisor of HSBC and various federal and state agencies, including the New York State Banking Department, and other relevant agencies. In addition, the Board has considered information provided by public commenters in connection with the proposal.(8)

Interstate Analysis

Section 3(d) of the BHC Act allows the Board to approve an application by a bank holding company to acquire control of a bank located in a state other than the home state of the bank holding company if certain conditions are met. For purposes of the BHC Act, the home state of HSBC is New York,(9) and the subsidiary banks of RNYC are located in New York, Florida, and California.(10) HSBC's U.S. subsidiary banks maintain branches in New York, Pennsylvania, and California.

Section 3(d) of the BHC Act provides that the Board may not approve a proposal if, after consummation, the applicant would control more than 10 percent of the total deposits of insured depository institutions in the United States.(11) In addition, the Board may not approve a proposal if, on consummation of the proposal, the applicant would control 30 percent or more of the total deposits of insured depository institutions in any state in which both the applicant and the organization to be acquired operate an insured depository institution, or such higher or lower percentage established by state law.(12)

On consummation of the proposal, HSBC would control approximately 1 percent of the total amount of deposits of insured depository institutions in the United States. HSBC would control less than 30 percent or the appropriate percentage established by applicable state law of total deposits held by insured depository institutions in the states in which HSBC and RNYC both operate an insured depository institution. All other requirements of section 3(d) of the BHC Act also would be met after consummation of the proposal.(13) In light of all the facts of record, the Board is permitted to approve the proposal under section 3(d) of the BHC Act.

Competitive Considerations

Section 3 of the BHC Act prohibits the Board from approving a proposal that would result in a monopoly. The BHC Act also prohibits the Board from approving a proposed bank acquisition that would substantially lessen competition in any relevant banking market unless the anticompetitive effects of the proposal are clearly outweighed in the public interest by the probable effect of the proposal in meeting the convenience and needs of the community to be served.(14)

HSBC and RNYC control banking operations that compete directly in the New York/New Jersey Metropolitan banking market ("New York banking market").(15) HSBC is the ninth largest depository institution in the New York banking market, controlling deposits of $10 billion, representing approximately 2.4 percent of total deposits in depository institutions in the New York banking market ("market deposits"). RNYC is the eighth largest depository institution in the New York banking market, controlling deposits of $13.6 billion, representing approximately 3.2 percent of market deposits.(16) On consummation of the proposal, New HSBC Bank would become the fifth largest depository institution in the New York banking market, and HSBC would control total deposits of approximately $23.7 billion in the market, including deposits in the New York branches of HSBC's foreign banking subsidiaries, HSBL and Midland Bank plc. After the transaction, the market would remain unconcentrated, as measured by the Herfindahl-Hirschman Index ("HHI") under the Department of Justice Merger Guidelines ("DOJ Guidelines").(17) In addition, numerous competitors would remain in the New York banking market. Based on these and all other facts of record, the Board concludes that consummation of the proposal would not result in any significantly adverse effects on competition or on the concentration of banking resources in the New York banking market or any other relevant banking market.

Financial and Managerial Resources

The Board has carefully considered the financial and managerial resources and future prospects of the companies and banks involved in the proposal, the effect the proposed transaction would have on such resources, and other supervisory factors in light of all the facts of record, including public comments.

In evaluating the financial and managerial factors, the Board has considered the terms of the merger, including the proposed financing arrangements for the transaction. The Board also has reviewed the proposed structure of the combined organization, and various commitments made by HSBC regarding the proposal. In addition, the Board has reviewed confidential examination and other supervisory information assessing the financial and managerial strength of HSBC and its subsidiaries and of RNYC and its subsidiaries. Moreover, the Board has reviewed information submitted by HSBC about the programs that HSBC and RNYC have implemented to prepare their systems for the year 2000 changeover and confidential examination and supervisory information assessing the organizations' efforts to ensure Year 2000 readiness, both before and after the proposed transaction.

In evaluating financial factors in expansion proposals by banking organizations, the Board consistently has considered capital adequacy to be especially important.(18) The Board expects banking organizations contemplating expansion to maintain strong capital levels substantially in excess of the minimum levels specified in the Board's Capital Adequacy Guidelines. HSBC's capital ratios exceed the minimum levels that would be required under the Basle Capital Accord and are considered equivalent to the capital that would be required of a U.S. banking organization. Moreover, the proposed transaction would not materially affect the capital position of HSBC or RNYC and is not expected to have a significantly adverse effect on the financial resources of HSBC. Other financial factors are consistent with approval.

The Board has also considered the managerial resources of HSBC and RNYC in light of all the facts of record, including confidential examination and other supervisory information.(19) In particular, the Board has taken into account the record of operation by HSBC of banks, branches, and representative offices in the United States. Based on all the facts of record, the Board concludes that considerations relating to the financial and managerial resources and future prospects of the organizations involved are consistent with approval.(20)

Convenience and Needs Factor

In acting on this proposal, the Board also must consider the convenience and needs of the communities to be served and take into account the records of the relevant depository institutions under the CRA. The CRA requires the federal financial supervisory agencies to encourage financial institutions to help meet the credit needs of local communities in which they operate, consistent with their safe and sound operation, and requires the appropriate federal supervisory authority to take into account an institution's record of meeting the credit needs of its entire community, including low- and moderate-income ("LMI") neighborhoods, in evaluating bank expansion proposals. The Board has carefully considered the convenience and needs factor and the CRA performance records of the subsidiary depository institutions of HSBC and RNYC in light of all the facts of record, including public comments on the proposal.

Twelve persons submitted written comments on various aspects of the proposal and, in particular, the effect of the proposal on the convenience and needs of the affected communities and the CRA performance records of the depository institutions involved. Several commenters opposed the proposal, alleging that HSBC and, to a lesser extent, RNYC have inadequate records of meeting the banking and credit needs of the communities they serve and, in particular, of communities with predominantly LMI and minority populations. Other commenters expressed the view that the proposal should not be approved absent certain specific commitments from HSBC to improve various aspects of its CRA-related programs. Some commenters praised the community reinvestment programs of Republic Bank in New York City, in particular its community development lending and affordable mortgage and consumer banking products, and expressed concern that these products or programs would not be continued after the banks merge.

A. CRA Performance Examinations

As provided in the CRA, the Board has evaluated the convenience and needs factor in light of examinations by the appropriate federal supervisors of the CRA performance records of the relevant institutions. An institution's most recent CRA performance review is a particularly important consideration in the applications process because it represents a detailed on-site evaluation of the institution's overall record of performance under the CRA by the appropriate federal financial supervisory agency.(21)

Both of HSBC's subsidiary banks have been examined for CRA performance and received "satisfactory" ratings in the most recent CRA examinations.(22) In particular, HSBC's lead bank, HSBC Bank, received "satisfactory" performance ratings from the Federal Reserve Bank of New York ("Reserve Bank"), as of October 5, 1998, and from the New York State Banking Department, on June 30, 1998.

Both of RNYC's subsidiary banks that are subject to the CRA also received "satisfactory" ratings in the most recent examinations of their CRA performance.(23) Republic Bank, RNYC's lead bank, received its "satisfactory" rating from the Office of the Comptroller of the Currency ("OCC"), as of May 15, 1997.

HSBC represents that it has no immediate plans to alter materially Republic Bank's CRA program, and that it will continue the principal features of the program until 2001. HSBC has also said that it will honor all outstanding loan, investment, and contribution commitments that have been made by Republic Bank through the year 2000, and that a significant portion of the CRA investment initiatives of Republic Bank will be continued beyond 2000. HSBC has indicated that it intends to use Republic Bank's retail lending operations to increase HSBC's lending to LMI individuals in the New York City metropolitan area. Consequently, the Board has taken into account the CRA performance records of both HSBC and RNYC in evaluating this proposal.(24)

B. HSBC's CRA Performance Record

HSBC Bank. Examiners concluded that HSBC Bank's lending activity had been responsive to the credit needs of its assessment areas, and commended the geographic distribution of HSBC Bank's lending within its assessment areas as well as its penetration among borrowers of different income levels.(25) Examiners described HSBC Bank's community lending performance as excellent. During the examination period, HSBC Bank had $137.7 million in community development loan commitments, $82.4 million (60 percent) of which supported affordable housing initiatives that provided for the construction or rehabilitation of 3,517 affordable housing units in its assessment area. Loans for economic development activity totaled $44 million, and community service lending accounted for $11.2 million.

Examiners characterized as excellent the geographic distribution of home improvement and small business loans made by HSBC Bank. Examiners found that the number of small business loans made by HSBC Bank in LMI census tracts was approximately 30 times greater than the number of loans it made in non-LMI census tracts, and that the level of home improvement loan originations in LMI census tracts was the same as the level of such originations in non-LMI tracts. In addition, examiners characterized HSBC's geographic distribution of home purchase and refinance loans as adequate. HSBC's Home Mortgage Disclosure Act (12 U.S.C. [sections] 2801 et seq.) ("HMDA") lending to moderate-income borrowers was described as good, and such lending to low-income borrowers was found to be adequate. Examiners found HSBC Bank's small business lending to reflect good penetration among small and large businesses. Between September 1, 1996, and June 30, 1998, 74 percent of HSBC Bank's small business loans in its assessment area were for $100,000 or less, and 47 percent of those loans were to businesses with reportable gross annual revenues of $1 million or less.

HSBC has indicated that HSBC Bank and HSBC Mortgage have a variety of products and programs intended for LMI individuals and small businesses, including mortgage products from the Veterans Administration, Federal Housing Administration, Freddie Mac, and the State of New York Mortgage Agency ("SONYMA"), as well as its own low-down payment mortgage products.(26) From 1997 to 1998, HSBC Bank made 419 loans under the SONYMA Low Interest Rate Program, which provides below-market interest rate loans for first-time homebuyers with higher than usual debt levels. Additionally, in the last two years, HSBC Bank has made more than $11 million in loans through the Fannie Mae Community Home Buyer program, which focuses on LMI borrowers.(27) Examiners found no evidence of prohibited discriminatory or other illegal credit practices by HSBC Bank.

HSBC Bank participates in several small business initiatives including the Business Consortium Fund, which provides contract financing to certified minority businesses across the United States; the Buffalo and Erie County Regional Development Corporation, under which HSBC Bank has extended $1.5 million in loans to women- and minority-owned businesses; the Excelsior Link Deposit program, run by the Empire State Development Corporation, through which HSBC has approved loans with an aggregate balance of $16.5 million to smaller businesses; the New York Business Development Corporation, through which HSBC Bank provides $7.5 million for lending and with which HSBC Bank has entered into four participations totaling $8.1 million; and the Community Preservation Corporation ("CPC") and the Community Lending Corporation, to which HSBC Bank has contributed a total of $9.5 million for construction lines of credit and $12.4 million for long-term loans aimed at financing affordable housing for LMI families in downstate and upstate New York, respectively.(28)

The CRA performance examination concluded that HSBC Bank had an adequate level of qualified community development investments and grants, and exhibited an adequate responsiveness to the credit and community development needs of its assessment areas.(29) At the time of the examination, HSBC Bank had $14.9 million in investments and deposits in various community development entities, and $639,000 in charitable grants and contributions to organizations supporting community development projects and programs. A total of $14.2 million in investments and grants were targeted for affordable housing. HSBC Development, which was acquired by HSBC Bank as part of its 1997 acquisition of First Federal Savings and Loan of Rochester, New York, specializes in building and rehabilitating affordable housing in the Buffalo and Rochester areas. In 1998, HSBC Development was involved in six projects which, when completed, will have constructed or rehabilitated 81 homes in Rochester and 54 homes in Buffalo.

Examiners rated HSBC Bank's performance on the service test portion of the CRA examination as outstanding, finding that HSBC Bank provided a very high level of banking services in its assessment area. HSBC Bank operates 374 branches, 92 of which are in LMI census tracts.(30) Examiners also noted that HSBC Bank offered a variety of alternative delivery systems, including automatic teller machines ("ATMs") and banking by phone and home computer. In the New York City area, Spanish- and Chinesespeaking representatives were available to help telephone banking customers, and 57 of HSBC Bank's ATMs in the New York City area were programmed in Spanish, Chinese, or both. Additionally, HSBC Mortgage operated nine mortgage loan production offices in New York State, including one in an LMI area. The CRA performance examination also concluded that HSBC Bank' s record of opening and closing branches during the examination period improved the accessibility of its service delivery systems, especially in LMI areas.

Examiners also noted that HSBC Bank offers no- or low-minimum balance savings accounts for all its customers and commended HSBC Bank's community development services, such as home buyer and home improvement seminars, credit counseling workshops, and small business financing seminars.(31)

Trade Bank. Trade Bank received a "satisfactory" rating from the OCC in its most recent CRA performance evaluation. Examiners concluded that it had an effective program for ascertaining community credit needs, which was carried out in conjunction with Wells Fargo Bank, N.A. ("Wells Fargo"), and used information from Wells Fargo's Corporate Community Development Group, which worked with elected officials, public advocates, private nonprofit agencies and for- profit developers to identify community credit needs, especially in LMI areas. Additionally, in 1996, Trade Bank conducted a credit needs survey that focused on credit availability in Trade Bank's particular market of international trade finance and banking services. Examiners also found that Trade Bank's board of directors is generally involved in CRA activities through its Compliance/CRA Committee.

The CRA performance examination found that Trade Bank used specialized marketing media, such as trade journals, trade shows, conferences, and seminars to communicate with the business community that needed the services it provided. Examiners found that Trade Bank's level of lending was responsive to the specialized credit needs of its delineated community, and that Trade Bank had addressed a significant portion of the identified need for international trade finance in that community. As of September 30, 1996, Trade Bank had total loans outstanding of $254 million. Examiners further found that the geographic distribution of Trade Bank's wholesale credit extensions was reasonable, and that there was no evidence of prohibited or illegal credit practices.

Trade Bank's community development activities were found to be appropriately responsive to credit and economic development needs in its delineated community. For example, during the examination period Wells Fargo committed to loans totaling $2 million on behalf of Trade Bank to develop five affordable housing projects with 189 units of multifamily, low-income rental housing. All the units were to be available to families with incomes of 60 percent or less of the area's median family income, and all the projects were in Trade Bank's delineated community. Trade Bank's other current community development investments totaled more than $3 million.

C. RNYC's CRA Performance Record

Republic Bank. Examiners found that Republic Bank's efforts to ascertain the credit needs of its communities were strong and identified several products designed to meet those needs. Republic Bank's board of directors was found actively to support the Bank's CRA programs and to oversee them effectively, and examiners deemed satisfactory Republic Bank's marketing efforts to inform its communities of available credit products and services.

The CRA performance examination found that Republic Bank had a satisfactory overall record of originating loan products that addressed the credit needs of its communities.(32) The examiners' analysis of lending patterns for mortgage, consumer, and small business loans indicated reasonable penetration in all segments of Republic Bank's delineated communities, including LMI areas. Using 1995 HMDA data, examiners found that for loans to LMI census tracts in the New York City market, Republic Bank ranked seventh in number of loans approved and fourth in dollar amount out of 210 lenders, originating 241 loans totaling $33.5 million. This represented 3.3 percent of the number of originations and 3.1 percent of the total dollar amount lent by all lenders in those LMI tracts in 1995. Regarding loans to LMI applicants in the New York City market, the examiners found that Republic Bank ranked seventh out of 177 lenders with 2.3 percent of the number of LMI loans and 2.6 percent of the dollar amount. In 1996, Republic Bank originated 183 loans worth $11.1 million to LMI borrowers in New York City, Westchester, and Long Island, and 79 loans totaling $3.9 million to LMI borrowers in Florida, which examiners concluded was reasonable relative to its presence in the market, competitive factors, and demographic characteristics. The CRA performance examination concluded that loan applications were received from all segments of the community, including LMI areas, and that Republic Bank was in substantial compliance with the various fair lending laws.

The CRA performance examination noted that Republic Bank had offered special mortgages for LMI borrowers through FNMA's Community Home Buyer Program since 1990. Examiners also noted Republic Bank's program for low-cost, below market rate mortgages for homebuyers in New York City Housing Partnership ("NYCHP") projects. According to Republic Bank, in 1998, the program was offered at two NYCHP projects in Brooklyn, two in the Bronx, and one in Manhattan. Republic Bank is also a founding member of the New York Mortgage Coalition ("NYMC"), which helps LMI individuals and families purchase homes. Through the NYMC program, community groups provide mortgage and credit education, counseling, and application assistance, while the NYMC member banks provide specialized mortgage products that include lower down payments and fees. According to Republic Bank, since 1993 the NYMC has originated approximately $110 million in home loans in the New York City market.

Examiners found that in 1996 Republic Bank originated 517 loans to small businesses in LMI census tracts in the New York City area, representing 27 percent of all its small business loans in the region. In Florida, 31 percent of its small business loans were made in LMI tracts. According to Republic Bank, in 1998 it originated or renewed approximately $180 million in loans to 1,758 borrowers, and 78 percent of those loans were for less than $100,000. Republic Bank is also a preferred Small Business Administration ("SBA") lender, and in 1998, made $1.3 million in new SBA loans. Since 1993, Republic Bank has had a micro-financing program in the New York City area that provides lines of credit and short-term loans of up to $50,000 to nonprofit organizations, start-up enterprises, and small businesses with less than $1 million in annual sales that do not meet its normal credit criteria. In 1998, Republic Bank made $374,000 in micro-loans under the program and originated almost $2 million in micro-lines of credit.

The CRA performance examination commended Republic Bank's Community Affairs Department as a leader in developing programs to promote affordable housing and economic development. It found the overall level of participation in community development activities to be reasonable and consistent with available opportunities. Examiners determined that from April 1995 to March 1997, Republic Bank made $13.5 million in community development loans and $43.4 million in community development investments. Republic Bank has indicated that in 1998 it originated more than $25 million in community development loans, with more than one-half of that amount for construction and rehabilitation projects.

Examiners took note of several of Republic Bank's community development efforts, including the New York Equity Fund ("NYEF"), an investment pool formed to rehabilitate New York City buildings to provide rental housing to low- and very-low-income families; Global Resources for Affordable Neighborhood Development ("GRAND"), which provides loans to build the new homes projects of NYCHP; Primary Care Development Corporation ("PCDC"), which provides loans to support the development of primary care programs in New York City; and the CPC. Republic Bank has indicated that it is still involved with all these programs, and that it has made total loans to NYEF since 1989 of more than $35 million, total investments of $43.5 million, and an investment commitment for 1999 of $15 million. In addition, in 1999, Republic Bank has committed to lend $5 million to GRAND, and $5 million to support PCDC's lending program. Republic Bank has provided CPC with a $10 million revolving line of credit, plus commitments of $4 million in 1999 for a non-recourse program and $17 million to purchase collateralized trust notes issued by CPC.(33)

The CRA performance examination found that Republic Bank provided services in response to special community credit needs, that its offices provided reasonable access to all members of its communities, and that its branch closing policy was consistent with regulatory guidelines. It noted that Republic Bank provided alternative delivery systems, including automatic teller machines ("ATMs"), and 24- hour banking by phone and home computer. Additionally, Republic Bank has indicated that it uses Spanish and Chinese language advertising, in addition to advertising that focuses on Hispanic and African-American communities.

Republic California. Republic California received a "satisfactory" rating from the OCC in its most recent CRA performance evaluation. Examiners concluded that Republic California's lending activity adequately addressed the community's credit needs, based on an evaluation of the volume and patterns of lending, inside and outside the assessment area. Examiners also concluded that Republic California's trade finance program was focused on severely underserved communities, and that a majority of Republic California's letter of credit financing was in low income areas that had no nearby banking offices. A substantial majority of lending by Republic California was found to be in the assessment area, and geographic loan distribution was determined to be good. Republic California also has a micro-loan program similar to the one offered by Republic Bank. Republic California participates in a number of affordable housing programs that include below-market interest rates, reduced costs, and other features designed to respond to the needs of LMI families. Examiners also conducted a fair lending review of Republic California's consumer lending portfolio and found no violations of the substantive provisions of the antidiscrimination laws and regulations.

Examiners concluded that Republic California is active in community development lending, given its size and business focus. From January 1995 through June 1997, Republic California originated 10 community development loans totaling $925,000 throughout its assessment area. The CRA performance examination also concluded that Republic California had a good record of providing community development investments in its assessment area and throughout Los Angeles County. At the time of the examination, Republic California had investments of $9.2 million, primarily in bonds and other securities that funded housing for LMI families and in LMI census tracts. According to Republic California, its current community development investment portfolio in its assessment area is $28.8 million, $27.7 million of which is invested in bonds, securities, and federal low-income tax credits serving LMI communities.

D. HMDA Data

The Board has also carefully considered the lending records of HSBC and RNYC in light of comments on the 1997 and 1998 HMDA data of the organizations' subsidiaries.(34) The data reflect certain disparities and weaknesses in the rates of loan applications, originations, and denials by racial group and income level.(35) The Board is concerned when the record of an institution indicates such disparities in lending, and believes that all banks are obligated to ensure that their lending practices are based on criteria that ensure not only safe and sound lending but also equal access to credit by creditworthy applicants regardless of their race or income level. The Board recognizes that HMDA data alone provide an incomplete measure of an institution's lending in its community because these data cover only a few categories of housing-related lending. HMDA data, moreover, provide only limited information about the covered loans.(36) HMDA data, therefore, have limitations that make them an inadequate basis, absent other information, for concluding that an institution has not adequately assisted in meeting its community's credit needs or has engaged in illegal lending discrimination.

Because of the limitations of HMDA data, the Board has considered these data carefully in light of other information, including examination reports that provide an on-site evaluation of the compliance by the subsidiary banks of HSBC and RNYC with fair lending laws and the overall lending and community development activities of the banks. In particular, examiners have found substantial compliance with fair lending laws at the most recent examinations of the subsidiary depository institutions of HSBC and RNYC. The Board also has considered the HMDA data in light of HSBC's and RNYC's overall lending record, which show that the organizations' subsidiary depository institutions assist significantly in helping to meet the credit needs of their communities, including LMI areas, through a variety of forms of lending, including small business loans and community development lending.

The data for 1998 generally show that HSBC(37) increased the number of HMDA-related loans it made to African-American, Hispanic, and LMI applicants and to applicants in LMI and minority census tracts,(38) and that the overall proportion of loans by HSBC to LMI applicants was only slightly lower than the aggregate. HMDA data for 1998 show that RNYC significantly increased its overall volume of HMDA-related loans from 1997, including increases in the number of loans to African-American and LMI applicants and to borrowers in LMI and minority census tracts.(39) Importantly, the information collected in the examination process does not indicate that HSBC engaged in any prohibited discriminatory practices. In addition, although HSBC received a lower percentage of loan applications from African-Americans than the aggregate, HSBC originated loans to a higher percentage of its African-American applicants than did the aggregate. In its most recent CRA examination, HSBC received a "high satisfactory" rating for its overall lending performance. As noted above, HSBC has a number of lending programs that benefit LMI communities and individuals that are not reflected in HMDA data. These programs include HSBC's community development lending, much of which finances affordable housing, and its small business lending.

The Board notes that HSBC has provided projections to the New York State Banking Department ("NYSBD") that it would increase the dispersion of its applications in majority minority census tracts(40) of New York State by the end of 2000 and has undertaken a variety of initiatives to increase its lending in predominantly minority and LMI areas. The Board encourages HSBC to continue to pursue these initiatives and, as a condition to approval of the proposal, requires HSBC to provide the Reserve Bank with a copy of the semiannual reports that HSBC files with the NYSBD concerning its efforts to achieve the projections. In addition, the Board expects HSBC to address any weaknesses in its CRA record noted at the most recent CRA examinations.

Branch Closings

HSBC Bank and Republic Bank together operate 456 branches in New York State, including 103 in LMI census tracts.(41) HSBC has indicated that it has not yet made any decisions on possible branch closures or consolidations as a result of the proposed transaction, although HSBC has indicated that it is evaluating for possible consolidation fewer than 20 pairs of HSBC Bank and Republic Bank branches that have offices that are in close proximity to each other. According to HSBC, six of the branch pairs under review for possible consolidation involve locations that could affect LMI areas. Five of the six branch pairs that might affect LMI areas involve branches that are within 500 feet of each other. Examiners found that HSBC Bank's branch closure policy conforms to the Joint Interagency Policy Statement Regarding Branch Closings.(42) HSBC Bank's policy requires consideration of the impact of a branch closure on the branch's neighborhood and that requires advance written notice of any branch closure be provided to the community. The examination found that past branch closures by HSBC Bank were conducted in accordance with its branch closure policy, and that HSBC Bank provided reasons for closings and timely advance notification to customers and regulatory authorities.

F. Conclusion on Convenience and Needs

The Board has carefully considered all the facts of record,(43) including public comments received, responses to the comments, and reports of examinations of CRA performance of the institutions involved, in reviewing the proposal's effect on the convenience and needs of the communities to be served by the combined organization.(44) Based on a review of the entire record, and for the reasons discussed in this order, the Board has concluded that convenience and needs considerations, including the CRA performance records of the subsidiary depository institutions of HSBC and RNYC, are consistent with approval.(45)

Other Considerations

Under section 3 of the BHC Act, the Board may not approve any application by a company that involves a foreign bank unless the bank is "subject to comprehensive supervision or regulation on a consolidated basis by the appropriate authorities in the bank's home country."(46) HSBC is the parent company for various banking and nonbanking companies ("HSBC Group"), including subsidiary banks located in the United Kingdom and elsewhere. The Financial Services Authority ("FSA") is the consolidated supervisor for the HSBC Group.(47)

The Board previously has determined, in other applications under the International Banking Act (12 U.S.C. [sections] 3101 et seq.) ("IBA") and the BHC Act involving United Kingdom banks, that those banks were subject to home country supervision on a consolidated basis.(48) The Board also previously has determined that the HSBC Group is supervised on substantially the same terms and conditions as those United Kingdom banks. Moreover, the Board previously determined that the requirements of section 3(c)(3)(B) of the BHC Act regarding comprehensive, consolidated supervision were met in connection with an application involving HSBC.(49) Based on all the facts of record, the Board has concluded that the requirements of section 3(c)(3)(B) of the BHC Act regarding comprehensive, consolidated supervision are met in this case.

The BHC Act also requires the Board to determine that the foreign bank has provided adequate assurances that it will make available to the Board such information on its operations and activities and those of its affiliates that the Board deems appropriate to determine and enforce compliance with the BHC Act. HSBC has committed that, to the extent not prohibited by applicable law, it will make available to the Board such information on the operations of HSBC and any of its affiliates that the Board deems necessary to determine and enforce compliance with the BHC Act, the IBA, and other applicable federal law. HSBC has also committed to cooperate with the Board to obtain any waivers or exemptions that may be necessary in order to enable HSBC to make any such information available to the Board. In light of these commitments and other facts of record,(50) the Board has concluded that HSBC has provided adequate assurances of access to any appropriate information the Board may request. For these reasons, and based on all the facts of record, the Board has concluded that the supervisory factors it is required to consider under section 3(c)(3) of the BHC Act are consistent with approval.

Nonbanking Activities

HSBC has also filed a notice under section 4(c)(8) of the BHC Act to acquire RNYC's nonbanking subsidiaries and thereby to engage in factoring, trust company functions, agency transactional services for customer investments, and investment transactions as principal. The Board has determined by regulation or order that the activities for which notice has been provided are closely related to banking for purposes of section 4(c)(8) of the BHC Act.(51) HSBC has committed to conduct these activities in conformance with Regulation Y and all applicable regulations and orders governing each activity.(52)

In order to approve HSBC's notice to engage in nonbanking activities, the Board must determine that the acquisition of the nonbanking subsidiaries of RNYC and the performance of those activities by HSBC is a proper incident to banking. That is, the Board must determine that the proposed transaction "can reasonably be expected to produce benefits to the public ... that outweigh possible adverse effects, such as undue concentration of resources, decreased or unfair competition, conflicts of interests, or unsound banking practices."(53)

As part of its evaluation of these factors, the Board considers the financial condition and managerial resources of HSBC and its subsidiaries, including the companies to be acquired, and the effect of the proposed transaction on those resources. For the reasons noted above, and based on all the facts of record, the Board has concluded that financial and managerial resources are consistent with approval of this notice.

The Board also has considered the competitive effects of the proposed acquisition by HSBC of the nonbanking subsidiaries of RNYC in light of all the facts of record, including the public comments received. The markets in which the nonbanking subsidiaries of HSBC and RNYC compete are national or regional and are unconcentrated. The Board concludes that consummation of this proposal would have a de minimis effect on the markets for lending and trust company and agency transactional services. The Board notes that numerous competitors would remain in each of these markets. Based on all the facts of record, the Board concludes that it is unlikely that significantly adverse competitive effects would result from the nonbanking acquisitions proposed in this transaction.

HSBC has indicated that the proposed transaction would increase the financial stability of the combined organization by assisting it in maintaining a well-balanced revenue stream and a broad capital base, and would also allow it to realize significant cost savings. In addition, as the Board has previously noted, there are public benefits to be derived from permitting capital markets to operate so that bank holding companies can make potentially profitable investments in nonbanking companies and from permitting banking organizations to allocate their resources in the manner they consider to be most efficient when such investments and actions are consistent, as in this case, with the relevant considerations under the BHC Act.(540

The Board also believes that the conduct of the proposed nonbanking activities within the framework of Regulation Y and Board precedent is not likely to result in adverse effects, such as undue concentration of resources, decreased or unfair competition, conflicts of interests, or unsound banking practices, that would outweigh the public benefits of the proposal, such as increased customer convenience and gains in efficiency. Accordingly, based on all the facts of record, the Board has determined that the balance of public interest factors that the Board must consider under the proper incident to banking standard of section 4(c)(8) of the BHC Act is favorable and consistent with approval.

HSBC has requested approval under section 4(c)(13) of the BHC Act and section 211.5(c) of the Board's Regulation K (12 C.ER. 211.5(c)) to acquire the non-U.S, operations of RNYC. HSBC also has applied under section 25A of the Federal Reserve Act and section 211.4 of Regulation K (12 C.F.R. 211.4) to acquire Republic International Bank of New York (Miami), Miami, Florida, and Republic International Bank of New York (Delaware), Wilmington, Delaware. In addition, Republic Bank has applied under sections 9 and 25 of the Federal Reserve Act (12 U.S.C. [subsections] 321 et seq. and 601 et seq.) to establish the Nassau, Bahamas branch of HSBC Bank as a branch of Republic Bank, and has applied under section 25 of the Federal Reserve Act and section 211.4 of Regulation K to acquire HSBC Bank's subsidiary, Marine Midland Overseas Corporation, an Agreement corporation. The Board concludes that all the factors required to be considered under the Federal Reserve Act, the BHC Act, and Regulation K are consistent with approval of the proposal.

In addition, Republic Bank has applied under section 9 of the Federal Reserve Act to become a member of the Federal Reserve System after its conversion to a New York State charter. The Board has considered the factors it is required to consider when reviewing applications pursuant to section 9 of the Federal Reserve Act and finds those factors to be consistent with approval.

Conclusion

Based on the foregoing, the Board has determined that the applications and notices should be, and hereby are, approved.(55) In reaching its conclusion, the Board has considered all the facts of record in light of the factors that the Board is required to consider under the BHC Act and other applicable statutes. The Board's approval is specifically conditioned on compliance by HSBC with all the commitments made in connection with this application and notice, and on the Board's receiving access to information on the activities or operations of HSBC and any of its affiliates that the Board determines to be appropriate to determine and enforce compliance by HSBC and its affiliates with applicable federal statutes. The Board's approval of the nonbanking aspects of the proposal also is subject to all the conditions set forth in this order and in Regulation Y, including those in sections 225.7 and 225.25(c) of Regulation Y (12 C.F.R. 225.7 and 225.25(c)), and to the Board's' authority to require such modification or termination of the activities of a bank holding company or any of its subsidiaries as the Board finds necessary to ensure compliance with, and to prevent evasion of, the provisions of the BHC Act and the Board's regulations and orders issued thereunder. These commitments and conditions are deemed to be conditions imposed in writing by the Board in connection with its findings and decision and, as such, may be enforced in proceedings under applicable law.

The acquisition of RNYC's subsidiary banks may not be consummated before the fifteenth calendar day after the effective date of this order, and the proposal may not be consummated later than three months after the effective date of this order, unless such period is extended for good cause by the Board or by the Reserve Bank, acting pursuant to delegated authority.

By order of the Board of Governors, effective December 6, 1999.

Voting for this action: Chairman Greenspan, Vice Chairman Ferguson, and Governors Kelley, Meyer, and Gramlich.

(1.) HSBC proposes to acquire RNYC by merging an indirect, wholly owned acquisition subsidiary with and into RNYC, with RNYC as the surviving corporation. HSBC proposes to hold the corporation resulting from the merger of RNYC with HSBC USA, Inc. through an intermediate holding company in the United States, HSBC North America, Inc. Because this intermediate company would indirectly control a U.S. bank, it would be a bank holding company for purposes of the BHC Act.

(2.) The nonbanking activities in which RNYC engages and for which HSBC, HFN, and HHBV have sought Board approval under section 4 of the BHC Act include factoring, in accordance with section 225.28(b)(1) of Regulation Y (12 C.F.R. 225.28(b)(1)); trust company functions, in accordance with section 225.28(b)(5) of Regulation Y (12 C.F.R. 225.28(b)(5)); agency transactional services, in accordance with section 225.28(b)(7) of Regulation Y (12 C.F.R. 225.28(b)(7)); and investment transactions as a principal, in accordance with section 225.28(b)(8) of Regulation Y (12 C.F.R. 225.28(b)(8)).

(3.) Republic Bank has applied to the New York State Banking Department to convert from a national to a New York State charter, and to the Board under section 9 of the Federal Reserve Act (12 U.S.C. [sections] 321 et seq.) for membership of the converted bank in the Federal Reserve System. On completion of the merger of Republic Bank and HSBC Bank, Republic Bank would change its name to HSBC Bank USA ("New HSBC Bank").

(4.) HSBC also has requested the Board's approval to hold and exercise an option to acquire up to 19.9 percent of the shares of RNYC's common stock.

(5.) Asset data are as of June 30, 1999, and ranking data are as of December 31, 1998, and are based on exchange rates then applicable.

(6.) Deposit data are as of June 30, 1999.

(7.) The Hongkong and Shanghai Banking Corporation Limited, Hong Kong Special Administrative Region, People's Republic of China ("HSBL"), and Midland Bank plc, London, United Kingdom, each maintain a branch in New York, New York; and Hongkong Bank of Canada, Vancouver, Canada, maintains branches in Portland, Oregon, and Seattle, Washington. In addition, HSBC Equator Bank plc, London, United Kingdom, has a representative office in Washington, D.C.

(8.) The Board received comments from 12 public commenters.

(9.) A bank holding company's home state is that state in which the total deposits of all banking subsidiaries of such company were the largest on July 1, 1966, or the date on which the company became a bank holding company, whichever is later. 12 U.S.C. [sections] 1841(o)(4)(C).

(10.) For purposes of section 3(d), the Board considers a bank to be located in the states in which the bank is chartered, headquartered, or operates a branch.

(11.) 12 U.S.C. [sections] 1842(d)(2)(A). For this purpose, insured depository institutions include all insured banks, savings banks, and savings associations.

(12.) 12 U.S.C. [sections] 1842(d)(2)(B)-(D).

(13.) HSBC is adequately capitalized and adequately managed, as defined by applicable law. 12 U.S.C. [sections] 1842(d)(1)(A). Republic California has been in existence and operated continuously for at least the period of time required by applicable state laws. See 12 U.S.C. [sections] 1842(d)(1)(B); Cal. Fin. Code [sections] 3825 (1999) (5 years). Additionally, Pennsylvania law authorizes an out-of-state bank to establish and maintain branches acquired from a predecessor in a merger, on condition of reciprocity with the laws of the state where the acquiring bank is chartered. 7 P.S. [sections] 904(a) (1999). New York law provides such reciprocity. N.Y. Banking Law [sections] 225.1 (1999).

(14.) 12 U.S.C. [sections] 1842(c)(1).

(15.) The New York banking market includes Bronx, Dutchess, Kings, Nassau, New York, Orange, Putnam, Queens, Richmond, Rockland, Suffolk, Sullivan, Ulster, and Westchester Counties in New York; Bergen, Essex, Hudson, Hunterdon, Middlesex, Monmouth, Morris, Ocean, Passaic, Somerset, Sussex, Union, Warren, and a portion of Mercer Counties in New Jersey; Pike County in Pennsylvania; and portions of Fairfield and Litchfield Counties in Connecticut.

(16.) Deposit and ranking data for the New York banking market are as of June 30, 1998.

(17.) The HHI in the New York banking market would increase from 771 to 786 as a result of the proposed transaction. See 49 Federal Register 26,823 (June 29, 1984). Under the DOJ Guidelines, a market in which the post-merger HHI is less than 1000 points is considered to be unconcentrated. The Department of Justice has informed the Board that a bank merger or acquisition generally will not be challenged (in the absence of other factors indicating anticompetitive effects) unless the post-merger HHI is at least 1800 and the merger increases the HHI by more than 200 points. The Department of Justice has stated that the higher than normal HHI thresholds for screening bank mergers for anticompetitive effects implicitly recognize the competitive effects of limited purpose lenders and other nondepository financial entities. As noted, the HHI in the New York banking market would remain less than 1000 points after consummation of the proposal.

(18.) See Chemical Banking Corporation, 82 Federal Reserve Bulletin 239 (1996).

(19.) One commenter expressed concerns about the managerial resources of Republic Bank, contending that its purchase of mortgagebacked securities issued by a subprime lender, Delta Funding Corporation, Woodbury, New York ("Delta"), reflected poorly on its fair lending safeguards. The Board has also considered these comments in reviewing the convenience and needs factors in this case.

(20.) In reviewing the managerial resources factor, the Board has considered available information, including confidential and supervisory information, regarding the charges of securities fraud filed against the owner and founder of Princeton Global Management Limited, a customer of Republic New York Securities Corporation ("RNYSC"), a subsidiary of RNYC. Neither RNYC nor RNYSC has been charged with wrongdoing by any government authority in connection with this matter, and RNYC has suspended the chief executive officer of RNYSC and replaced the management of RNYSC's Futures Division. In addition, the Board notes that HSBC has reviewed the activities of RNYSC, and the Board has taken account of plans by HSBC to address potential effects that might result from the Princeton matter. The Board is coordinating its review of this matter with the functional regulators of RNYSC and other appropriate law enforcement authorities.

(21.) The Interagency Questions and Answers Regarding Community Reinvestment provide that a CRA examination is an important and often controlling factor in the consideration of an institution's CRA record. See 64 Federal Register 23,641 (1999).

(22.) In addition to HSBC Bank (formerly Marine Midland Bank), HSBC also owns, through HSBC USA, Inc., 40 percent of the equity of Wells Fargo HSBC Trade Bank N.A., San Francisco, California ("Trade Bank"), a national bank joint venture with Wells Fargo & Company. For CRA purposes, Trade Bank is evaluated as a wholesale financial institution because it is devoted solely to international trade finance and international banking services.

(23.) Republic Bank Delaware National Association, Wilmington, Delaware, is an uninsured limited purpose trust company and, thus, is not subject to the CRA.

(24.) One commenter expressed concern that the proposed transaction might result in job losses in the New York City area, and that the proposal could result in increased fees for banking products and services. The effect of a proposed acquisition on employment in a community is not among the factors included in the BHC Act, and the convenience and needs factor has been interpreted consistently by the federal banking agencies, the courts, and Congress to relate to the effect of a proposal on the availability and quality of banking services in the community. See Wells Fargo & Company, 82 Federal Reserve Bulletin 445,457 (1996).

HSBC Bank and Republic Bank offer a full range of banking products and services, including low-fee bank accounts, and New HSBC Bank intends to continue to offer affordable basic checking and savings accounts. Moreover, although the Board has recognized that banks help to serve the banking needs of communities by making basic services available at nominal or no charge, the CRA does not require an institution to limit the fees charged for its services or provide any specific types of credit products.

(25.) Examiners also considered the lending activity of HSBC Bank's affiliated mortgage company HSBC Mortgage Corporation ("HSBC Mortgage").

(26.) A number of commenters expressed concern that HSBC Bank's mortgage products are more standardized, and thus potentially less able to meet the credit needs of particular communities, than those of Republic Bank. One commenter suggested that in general HSBC Bank did not provide adequate affordable lending products or homeowner education programs for LMI communities.

(27.) HSBC Bank also provides grants to assist first-time homebuyers in meeting down payment requirements through a program sponsored by the Federal Home Loan Bank of New York ("FHLBNY"). HSBC Bank also participates in the FHLB System's Affordable Housing Program, which provides subsidized funds to finance the purchase, construction, and rehabilitation of owner-occupied and rental housing for LMI households. One commenter requested that HSBC Bank commit to remaining a member of FHLBNY. HSBC indicated that it has not decided whether to continue its membership after consummation of the proposal.

(28.) One commenter urged that HSBC offer construction lending, in particular, for affordable housing projects. The CRA does not require an institution to offer any specific credit products but allows an institution to help serve the credit needs of the institution's community by providing credit of the types consistent with the institution's overall business strategy and expertise.

(29.) One commenter called for HSBC to expand its community development grant program.

(30.) This information is based upon branch data provided by HSBC, as of June 11, 1999.

(31.) One commenter urged HSBC to focus on African-Americans and Hispanics for its credit counseling and homebuyer education services.

(32.) Examiners also considered the home mortgage lending activity of Republic Bank's subsidiary, Republic Consumer Lending Group, Inc.

(33.) Several commenters praised Republic Bank's community development lending, calling it "a significant source of support for community revitalization" in New York City.

(34.) Several commenters were critical of HSBC Bank's lending record as reflected in its 1997 and 1998 HMDA data. Among the criticisms made by the commenters were that HSBC Bank makes too few of its HMDA- related loans to minority applicants and in predominantly minority areas; that the disparity between the denial rates for white and minority loan applicants is too large; that HSBC Bank's overall market share of loans in LMI areas is too small; and that HSBC Bank attracts too few minority and LMI loan applicants. One commenter identified the level of HSBC Bank's single-family housing lending as requiring improvement.

(35.) For example, HSBC's mortgage originations in LMI and minority census tracts and to African-American and Hispanic applicants, as a percentage of its total mortgage lending, are lower relative to the aggregate and relative to the demographics of the markets in which HSBC operates. In this context, the aggregate means the cumulative lending for all institutions that have reported HMDA data in a given market.

(36.) The data, for example, do not account for the possibility that an institution' s outreach efforts may attract a larger proportion of marginally qualified applicants than other institutions attract and do not provide a basis for an independent assessment of whether an applicant who was denied credit was, in fact, creditworthy. Credit history problems and excessive debt levels relative to income (reasons most frequently cited for a credit denial) are not available from HMDA data.

(37.) HMDA data for HSBC represent the combined lending of HSBC Bank and HSBC Mortgage in the MSA portions of HSBC Bank's New York assessment area.

(38.) In this case, minority tracts are those in which 80 percent or more of the population are minorities.

(39.) HMDA data for RNYC represent the combined lending of Republic Bank and its subsidiary, Republic Consumer Lending Group, Inc., in Republic Bank's New York assessment area.

(40.) Majority minority tracts are those in which more than 50 percent of the population are minorities.

(41.) This total includes branches in block numbering areas, where the branch is located outside a MSA, and is based on branch data provided by HSBC, as of June 11, 1999.

(42.) 64 Federal Register 34,844 (1999).

(43.) Several commenters urged the Board to condition approval of the proposal on HSBC's making certain community reinvestment and other commitments. The CRA requires the Board, in considering HSBC's application to acquire RNYC and RNYC's subsidiaries, to review carefully the actual record of past performance of the insured depository institutions controlled by HSBC and RNYC in helping to meet the credit needs of their communities. Consistent with this mandate, the Board previously has held that, to gain approval of a proposal to acquire an insured depository institution, an applicant must demonstrate a satisfactory record of performance under the CRA at the time an application is filed with the Board without reliance on plans or commitments for future action. See Totalbank Corporation of Florida, 81 Federal Reserve Bulletin 876 (1995); First Interstate Bank Systems of Montana, Inc., 77 Federal Reserve Bulletin 1007 (1991). The Board notes that the future activities of HSBC's subsidiary banks will be reviewed by the appropriate federal supervisors in future performance examinations, and such CRA performance records will be considered by the Board in any subsequent applications by HSBC to acquire a depository institution.

(44.) One commenter maintained that the purchase by Republic Bank of mortgage-backed securities ("MBSs") issued by Delta, which recently reached a settlement with New York State authorities regarding its lending practices, suggests that Republic Bank lacks fair lending compliance safeguards and might constitute a discriminatory lending practice. Republic Bank purchased MBSs issued by Delta on 10 occasions between July 1997 and June 1999. The Board has reviewed Republic Bank's standards for investing in MBSs and has found nothing to suggest that its decisions to invest in particular MBSs are based on any prohibited criteria. Moreover, RNYC has indicated that it was not involved in originating the underlying loans that were securitized or in developing the criteria governing the types of loans that were securitized. The Board has forwarded a copy of all comments on Delta to the Department of Justice, the Department of Housing and Urban Development, and the Federal Trade Commission, which have responsibility for reviewing compliance with the fair lending laws by nonbanking companies.

(45.) One commenter raised an issue concerning a labor dispute between Republic Bank and a union representing some of the bank's support personnel. Several claims resulting from this dispute have been filed with the National Labor Relations Board, which has jurisdiction over such matters.

(46.) 12 U.S.C. [sections] 1842(c)(3)(B). As provided in Regulation Y, the Board determines whether a foreign bank is subject to consolidated home country supervision under the standards set forth in Regulation K. 12 C.F.R. 225.13(a)(4). Regulation K provides that a foreign bank may be considered subject to consolidated supervision if the Board determines that the bank is supervised or regulated in such a manner that its home country supervisor receives sufficient information on the worldwide operations of the foreign bank, including the relationships of the bank to its affiliates, to assess the foreign bank's overall financial condition and compliance with law and regulation. 12 C.F.R. 211.24(c)(1)(ii).

(47.) In June 1998, the FSA assumed the bank supervisory functions formerly exercised by the Bank of England. This transfer of supervisory responsibilities has not resulted in any substantial changes in the scope or nature of the supervision of U.K. banks.

(48.) See Bank of Scotland, 84 Federal Reserve Bulletin 230 (1998); West Merchant Bank Limited, 81 Federal Reserve Bulletin 519 (1995). The Board has previously determined that HSBL and HSBC Equator Bank plc, members of the HSBC Group, are subject to comprehensive, consolidated supervision. HSBC Equator Bank plc, 84 Federal Reserve Bulletin 564 (1998); The Hongkong and Shanghai Banking Corporation Limited, 81 Federal Reserve Bulletin 902 (1995).

(49.) Wells Fargo & Company, HSBC Holdings plc, et al., 81 Federal Reserve Bulletin 1037 (1995).

(50.) The Board notes that it previously has reviewed relevant provisions of confidentiality, secrecy, and other laws in the jurisdictions in which HSBC has material operations. See HSBC Equator Bank plc, 84 Federal Reserve Bulletin 564 (1998); The Hongkong and Shanghai Banking Corporation Limited, 81 Federal Reserve Bulletin 9(12 (1995).

(51.) See 12 C.ER. 225.28(b)(1), (5), (7), and (8).

(52.) HSBC has applied to acquire Republic New York Securities Corporation ("RNYSC"), a subsidiary of RNYC that currently is engaged in underwriting and dealing in bank-ineligible securities, to a limited extent, pursuant to section 20 of the Glass-Steagall Act (12 U.S.C. [sections] 377). However, HSBC and RNYC have committed that on or before consummation of the proposal, RNYC will cease underwriting and dealing in bank-ineligible securities or performing any other activity restricted by section 20 of the Glass-Steagall Act. HSBC has indicated that all section 20 activities performed by HSBC will be conducted solely through HSBC Securities, Inc. See HSBC Holdings plc, et al., 82 Federal Reserve Bulletin 356 (1996).

(53.) 12 U.S.C. [sections] 1843(c)(8).

(54.) See, e.g., Norwest Corporation, 84 Federal Reserve Bulletin 1088 (1998); Deutsche Bank AG, 85 Federal Reserve Bulletin 509 (1999).

(55.) Three commenters requested that the Board hold a public meeting or heating on the proposal. Section 3(b) of the BHC Act does not require the Board to hold a public hearing on an application unless the appropriate supervisory authority for the bank to be acquired makes a timely written recommendation of denial of the application. The Board has not received such a recommendation from the appropriate supervisory authorities.

Under its rules, the Board also may, in its discretion, hold a public meeting or heating on an application to acquire a bank if a meeting or hearing is necessary or appropriate to clarify factual issues related to the application and to provide an opportunity for testimony. 12 C.F.R. 225.16(e). Section 4 of the BHC Act and the Board's rules thereunder provide for a hearing on a notice to acquire nonbanking companies if there are disputed issues of material fact that cannot be resolved in some other manner. 12 U.S.C. [sections] 1843(c)(8); 12 C.F.R. 225.25(a)(2). The Board has considered carefully these commenters' requests in light of all the facts of record. In the Board's view, commenters have had ample opportunity to submit their views, and did submit written comments that have been considered carefully by the Board in acting on the proposal. The commenters' requests fail to demonstrate why their written comments do not present their views adequately and fail to identify disputed issues of fact that are material to the Board's decision that would be clarified by a public meeting or hearing. For these reasons, and based on all the facts of record, the Board has determined that a public meeting or hearing is not required or warranted in this case. Accordingly, the requests for a public meeting on the proposal are denied.

ROBERT DEV. FRIERSON Associate Secretary of the Board
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Date:Feb 1, 2000
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