shares of mutual funds.

11

However, the Glass-Steagall Act does not

define the term "distributor", and a review of prospectuses for

mutual funds indicates that the duties of the company denominated as the distributor varies widely across funds.

The designation of an entity as "a distributor" of mutual funds, therefore, is not itself a relevant inquiry under the Glass-Steagall Act. The Glass-Steagall Act prohibits a bank from engaging in "the business of issuing, underwriting, selling, or distributing, at wholesale or retail, or through syndicate participation, stocks...or other securities."

(Sections 16 and

21 of the Glass-Steagall Act, 12 U.S.c. 24 (Seventh) & 378). The Supreme Court has indicated that this also includes a prohibition on engaging in the "public sale" of securities. Thus, the relevant inquiry under the Glass-Steagall Act is whether, under the proposal, Mellon Bank would, through its proposed Dreyfus operating subsidiaries, be engaged in any of these prohibited activities.

Our understanding of the activities of Dreyfus Service Corporation are limited to the description in the notice provided to the OCC, and the Board has no additional information on this matter. As described below, the Board has not had occasion to consider whether a company that engages in the same activities conducted by Dreyfus Service Corporation would be engaged in "issuing, underwriting, selling, [the public sale], or distributing, at wholesale or retail, or through syndicate participation, stocks...or other securities."

12

b. In April 1993, the Board-approved Mellon's

purchase of The Boston Company (TBC), a firm that, among other things, provides investment advice and administrative services to mutual funds, and authorized Mellon to continue providing such services through TBC. However, as part of the approval, Mellon pledged to terminate TBC's role as a sponsor of mutual funds, and represented that no Mellon entity would be involved in the distribution of shares of any mutual fund.

Nonetheless, the Mellon-Dreyfus application to the
OCC would appear to permit Dreyfus entities (to be
acquired by Mellon) to continue to be involved in
wide-scale distribution of mutual funds. Is the
Mellon-Dreyfus application consistent with the TBC
approval? Please comment on the different
regulatory approaches taken by the Board and the
OCC in these similar circumstances, and explain
why the Board placed more restrictive conditions
on Mellon in the context of its acquisition of
TBC.

The Mellon proposal to acquire The Boston Company

("TBC") did not raise the issue of whether the acquisition would cause Mellon to be engaged in the distribution of shares of a mutual fund. In that case, TBC had originally sponsored and distributed shares for several of the mutual funds advised by TBC, and was responsible for advertising and marketing the shares of the mutual funds advised by TBC. However, as noted in the Board's order in that case, Mellon did not propose to continue these activities after the acquisition of TBC. Rather, Mellon indicated that, following the acquisition, TBC did not propose to engage in any sales activities with regard to mutual fund shares, enter into any distribution agreement, develop any marketing plans for mutual funds, or engage in advertising activities with respect to mutual funds. Mellon Bank Corporation, 79 Federal

80-222 O-94-28

13

Reserve Bulletin 626, n. 15 (1993).

Thus, the Board's order in

that case is limited to a general determination that

administrative services (when conducted within the limits

described in the Board's order) are closely related to banking

for purposes of the Bank Holding Company Act.

The Board was not called on in the Mellon case, and did not reverse or change the restriction in its interpretive rule that bank holding companies may not engage in underwriting or the distribution of shares of a mutual fund advised by the holding company. 12 CFR 225.125. Thus, because of the more limited scope of the Mellon/TBC proposal, the Board did not consider the permissibility of some of the activities conducted by Dreyfus, or whether conditions or limitations are appropriate for the conduct of these activities by a banking organization.

The OCC continues to have the Mellon proposal under

review, and has full authority to impose conditions on the

ownership of Dreyfus by Mellon Bank, as well as on the activities of Dreyfus. It is not possible at this time to determine whether

there is any inconsistency between the action of the Comptroller

and the Board's decision in Mellon/TBC.

Attachment

Introduction to Nonbank Activities

3000.0

3000.0.2 APPENDIX 1—ACTIVITIES APPROVED BY THE BOARD AS BEING CONSIDERED "CLOSELY RELATED TO BANKING" UNDER SECTION 4(C)(8) OF THE BANK HOLDING COMPANY ACT (SECTION 225.25(B) OF REGULATION Y)

Permined by Regulation

1. Making, acquiring, or servicing loans or other extensions of credit for:

Mortgage banking'

Finance companies: consumer, sales, and commercial'

Credit cards

Factoring

2. Industrial bank, Morris Plan bank, industrial loan company

3. Trust company'

4. Investment or financial advising

a. Providing advisory services to open-end investment companies

b. Providing financial advice, including rendering fairness opinions and valuation services, in connection with institutional customers with respect to mergers, acquisitions, divestitures, joint ventures, leveraged buyouts, reorganizations, recapitalizations, capital structurings, and financing transactions (including private and public financings and loan syndications); and conducting feasibility studies

Year Added

1971

1971

1971

1971

1972

1992

c. Providing financial and transaction advice to institutional customers regarding the structuring and arranging of swaps, caps, and similar transactions relating to interest rates, currency exchange rates or prices, and economic and financial indices and similar transactions

1992

d. Providing financial advice to:

(1) State and local governments; and

1973

(2) Foreign governments including foreign municipalities and agencies of
foreign governments, such as with respect to issuance of their securities

1992

5. a. Full-payout leasing of personal and real property 2

1971

b. Providing certain higher residual value leasing for tangible personal
property, including acting as agent, broker, or advisor in leasing such property

11. Management consulting to unaffiliated bank and nonbank depository institutions

12. Issuance and sale at retail of money orders with a face value of not more than $1,000, savings bonds, and the issuance and sale of travelers checks

b. Securities brokerage and related securities credit activities (pursuant to Regulation T) 1992