21st Century Digital Data Processing: Banking and Non-Financial Data

Bank Holding Companies and Antitrust Regulation: Contemplating Market Power, Relationship Management, and Mixed Products in 2007

 
By Daniel M Rosenblum

I  Introduction

It is well known amongst legal practitioners who are familiar with Bank Holding Company (BHC) regulation and antitrust law that there exist points of contention in interpretation of the statute which regulates BHC antitrust matters in the United States. The statute, 12 USC 1972, is Section 106 of the Bank Holding Company Amendments of 1970 and is commonly referred to as either "Section 106" or the "Anti-Tying Statute".
The purpose of the anti-tying statute is to prohibit illegal tying arrangements by BHCs. Illegal tying arrangements take one of three forms: in order for a banking customer to purchase his desired banking product, the customers is illegally forced to either 1) buy a second product 2)refrain from buying a second product or 3) provide a second product. In each of these three scenarios, a desired banking product has restrictions relating to a tied product.
For perpetuity banking has been anchored in deal offerings which combine banking products. The business of banking is unique insofar as it is a business predominantly arithmetical in nature; therefore, depending upon the market and the economy, products are more efficiently offered in combinations.  A customer chooses to use a bank for its multiple offerings, not for just one of the bank's products. Banks compete, and customers enjoy the fruits thereof, when the bank offers multiple banking products to the public.
The United States Congress recognized this thirty-seven (37) years ago when in 1970 Congress chose to codify Section 106 as a banking antitrust statute separate and apart from the Sherman and Clayton Acts, who’s seventy years of precedent previous thereto defined the antitrust landscape in the U.S. The measure which Congress took to ensure that legitimate traditional banking product combinations could continue without disruption was to enact exceptions (commonly known as “traditional product exceptions”) to the statute within the self-same statute.
The statute and the exemptions to Section 106 are discussed below in greater detail along with a discussion of the two most prominent points of contention articulated amongst practitioners today discussing Section 106. Finally, a mechanism by which to address these concerns and the problems they present is offered: certain additional permissible banking activities merit codification as traditional banking activities for purposes of Section 106. The two points of contention identified and discussed are 1) the role of the significance of a bank's market power in anti-tying jurisprudence, and 2) BHC customer relationship management and the concept of "reasonable alternatives" to mixed-product arrangements offered to customers in light of Section 106.     

II Two Sources of Contention in Interpretation of Section 106
There are primarily two sources of industry contention to judicial and regulatory interpretation of Section 106:
1) The first concerns “Market Power”. In litigation, a plaintiff need not show that an illegal tying arrangement originates from a dominant market participant for the alleged tie to be in contravention of the statute. If the BHC is offering two products whose relationship to one another is deemed violative of Section 106 statutory language describing illicit combinations of two separate products, the BHC is exposed to enormous potential liability for breaking the law. It does not matter whether the company is a "mom & pop" organization in a fully evolved industrial marketplace nor the extent to which both products are competitively available elsewhere.
Even though there may be thriving competition amongst BHC regulated companies that are in business only to offer combinations of banking related products, under current regulatory interpretation, a situation can arise whereby extant competition shall not be considered if in litigation tying is alleged by any customer for any reason. A plaintiff need not demonstrate, as the plaintiff would need to demonstrate under the Clayton or Sherman Acts, that the offering bank has any significant market power in either of the offered products. This factor in the statute is controversial, and varies considerably compared to the Sherman and Clayton statutes.
 
2) The second source of contention revolves around the issue of BHC 'relationship management' for its customers and the concept of 'reasonable alternatives' in light of the statute when a bank offers multiple product packages ("mixed-product arrangements") to customers.
An adequate understanding of this point of contention requires a discussion of the 'traditional product' exemption to Section 106, the exemption's legislative history, and the exemption's implications, which are discussed in greater detail below.  A manner to address these points of contention towards resolution of the problems they present is offered thereafter: certain additional permissible banking activities merit codification as ‘traditional banking activities’ for purposes of Section 106.
III The Statute
The statute under consideration is 12 USC 1972, the Anti-Tying Statute of the Bank Holding Company Act Amendments of 1970 (emphasis has been added to the statute below by italicizing the exceptions to the restrictions):
§ 1972. Certain tying arrangements prohibited; correspondent accounts
 (1) A bank shall not in any manner extend credit, lease or sell property of any kind, or furnish any service, or fix or vary the consideration for any of the foregoing, on the condition or requirement--
(A) that the customer shall obtain some additional credit, property, or service from such bank other than a loan, discount, deposit, or trust service;
(B) that the customer shall obtain some additional credit, property, or service from a bank holding company of such bank, or from any other subsidiary of such bank holding company;
(C) that the customer provide some additional credit, property, or service to such bank, other than those related to and usually provided in connection with a loan, discount, deposit, or trust service;
(D) that the customer provide some additional credit, property, or service to a bank holding company of such bank, or to any other subsidiary of such bank holding company; or
(E) that the customer shall not obtain some other credit, property, or service from a competitor of such bank, a bank holding company of such bank, or any subsidiary of such bank holding company, other than a condition or requirement that such bank shall reasonably impose in a credit transaction to assure the soundness of the credit.
 The Board may by regulation or order permit such exceptions to the foregoing prohibition and the prohibitions of section 1843(f)(9) and 1843(h)(2) of this title as it considers will not be contrary to the purposes of this chapter.

IV The Primary ‘Traditional Product’ Exceptions and their Legislative History
 
As is readily observed, the primary exceptions to the anti-tying statute are writ into the statute. The primary exceptions allow for the tying of four product classes: loans, discounts, deposits and trusts- to other desired banking products. The four product classes are commonly referred to as the “traditional banking products.” Thus, the exemptions are referred to as “traditional product exceptions.” Here, the clauses which comprise of the primary “traditional product” exceptions at 12 USC § 1972 (1)(A), (1)(C), and (1)(E) are identified and reprinted. In addition to the primary codified exceptions, the final paragraph of the statute allows for additional exceptions upon Board of Governor approval:
The clause which completes § 1972 (1)(A) is the primary exception:
other than those related to and usually provided in connection with a loan, discount, deposit, or trust service;
The clause is repeated, albeit modified at § 1972(1)(c) as:
other than those related to and usually provided in connection with a loan, discount, deposit, or trust service;
The clause is repeated again at § 1972(1)(E), albeit once again modified as
other than a condition or requirement that such bank shall reasonably impose in a credit transaction to assure the soundness of the credit.
And finally, the possibility for additional exceptions are codified at the tail end of the statute with the paragraph:
The Board may by regulation or order permit such exceptions to the foregoing prohibition and the prohibitions of section 1843(f)(9) and 1843(h)(2) of this title as it considers will not be contrary to the purposes of this chapter.
 As the final paragraph stipulates, other exceptions to the statute were contemplated and anticipated by Congress in 1970 when the anti-tying statute was enacted. As the final paragraph stipulates, other exceptions must pass Board of Governor approval. This paragraph is not inconsistent with the Board expanding the list of traditional activities.
A review of the currently available reports from Congress from 1970 prove useful to expound upon Congressional intent in permanently codifying the traditional bank product exceptions. Conveniently, text from the Congressional sessions during which the statute is memorialized for perpetuity in print the matter of Nesglo, Inc. v. The Chase Manhattan Bank N.A.at 506 F.Supp. 254 at 264 (D. Puerto Rico, 1980), reprinted below.    
The root rationale for codifying primary exceptions is relationship management. Relationship management is realistically appreciated as an evolving concept; managing bank customer relationships in the 21st Century is quite different than doing so in 1970. This article advocates that the permanent exceptions should be expanded, and that Congress, when permanently excepting four traditional products, acted in a manner which the Board as well is authorized to do by the statute. Such an expansion would alleviate, towards resolution, the two primary concerns identified above.
When enacting Section 106, Congress recognized that relationship management was not only beneficial to both consumer and bank, but also part and parcel of banking in general. Loans, discounts, deposits, and trusts were the products recognized in 1970 as products which are traditional banking products, and were thusly permanently exempt from bank tying restrictions.  Industry has evolved in ways that could not have been anticipated in 1970. There are more than simply four products families in the list of permissible banking activities which are properly construed as traditional banking products which should properly be permanently exempt from the anti-tying statute. In this manner, combinations thereof can be offered to the public depending upon the market based upon the market for such combinations.
As the legislative history cited below in Nesglo demonstrates quite clearly, as Congress deliberated successful banking relationships and the proposed tying legislation, Congress recognized that there need be permanent exceptions to bank tying restrictions for BHCs to function effectively.
Historically, prior to enactment of Section 106, such practice was commonplace. Congress did not want to disrupt legitimate, productive banking practices. Congress further recognized that amongst the myriad exceptions which would be determined by the Federal Reserve Board as necessary, certain exceptions were so obvious and evident that they should be legislated as permanent or else banks would be overburdened in seeking exemptions for certain practices, the Board would be inundated in deliberating and excepting acceptable banking practices from the new antitrust legislation, and as a result productivity and competition would suffer.
With this goal, the permanent exceptions were carved out and codified during Congressional debate as an amendment to the 1970 bill under consideration by Congress prior to its enactment, specifically with the intention that many more exceptions exist and that some exceptions merited codification at that time.
Excerpts from the relevant 1970 Congressional discussion by Senator Bennett on this matter are cited in the matter of Nesglo, Inc., v. The Chase Manhattan Bank, 506 F.Supp. 254 at 264 (D. Puerto Rico, 1980). At the time Senator Bennett made these remarks, the bill in front of Congress allowed for Board of Governor approved exceptions to the anti-tying statute upon individual application, but there were not yet permanent exceptions. In proposing the traditional banking practices exception amendment to the bill, Senator Bennett made these remarks on behalf of the Committee which speak directly to the purpose of amending the bill to include permanent exceptions:
This amendment, which is based on the committee report, is designed to eliminate from the restrictions of Section 104 traditional banking practices competitive effects and which in many cases are vital to the conduct of sound banking. Under the bill, the Federal Reserve Board would be authorized to grant specific exemptions for those traditional banking practices, since they have no serious anticompetitive effects. However, it seems much better legislative procedure for the Congress not to forbid practices which it wishes to permit, expecting the Federal Reserve Board to take the time, use the energy, and incur the expense of examining everyone of these, and grant exemptions for desirable practices. The Federal Reserve Board stated in the letter I shall insert that it believes it is better to include exemptions in the statute rather than to place them under administrative discretion. They state, ‘Accordingly, we recommend adoption of the amendment.'
 
Instead, where we are satisfied that a practice is not anticompetitive and should be continued, let us say so in the law, and leave the Board only the task of exempting further activities of the same sort which it may determine to be desirable in the best interest of sound banking practices. Where the bill might prohibit a bank from extending credit or furnishing a service, or varying the consideration therefore, on condition that the customer obtain some other credit or service from the bank, this amendment would except a loan, discount, deposit or trust service. This will, among other things, enable the customer to continue to negotiate his costs and fees with the bank on the basis of his entire relationship with the bank, as the committee report points out at page 17. Clearly, neither a bank nor its customer should be attacked under section 104 for taking advantage of the economies and efficiencies of full‐service banking. Where the bill might prohibit a bank from extending credit or furnishing any service, or varying the consideration therefor, on condition that the customer provide some additional credit or service to the bank, this amendment would exempt services related to and usually provided in connection with a loan, discount, deposit, or trust service. This provision will, among other things, make it clear that section 104 is not intended to affect additional correspondent bank relationships, compensating balances, and similar *263 practices. If a country bank wishes to obtain investment advice, proof and transit work, or other services from a city bank, and should use its balance at the city bank to pay for these services, there should be no objection to this arrangement, and section 104 should not prohibit this practice. Where the bill might prohibit a bank from extending credit or furnishing a service, or varying the consideration therefor, on condition that the customer shall not obtain some other credit or service from a competitor, this amendment would exempt such conditions or requirements as the bank shall reasonably impose in a credit transaction to assure the soundness of a credit. Bank loans are usually made on the basis of a careful analysis of the would‐be borrower's financial position, including his assets, liabilities, income, expenses, cash flow, etcetera. It is customary, particularly, where a customer is borrowing up to the limit of his ability to pay, to require that during the term of the loan he should not borrow or pledge his assets elsewhere. Such an arrangement is clearly required as a matter of sound banking.
Thus, following Congressional intent in enacting Section 106 as writ, the Nesglo court held that certain exclusive dealing arrangements, conditions, and requirements were sanctioned by Congress when it came to banking:
Paragraph 6 of the Complaint states that Chase required Nesglo to refrain from doing business with other banks and that it handle its deposits with Chase. However, as we have seen, the legislative history behind Section 1972 shows that it is normal and traditional banking practice for a prospective borrower to keep with the lending bank its business deposits and for the bank to protect its investment by imposing restrictions on borrowing by debtor from other concerns a legislatively sanctioned form of exclusive dealing which of necessity translates itself into not doing business with other banking or financing entities. Averments that Nesglo refrain from doing business with other banks, when read in conjunction with the multiple loan transactions between Nesglo and Chase, especially as they appear set forth in paragraphs 8, 16 and 17 of the Complaint merely indicate traditional banking conditions or requirements evidencing concern for protection of the soundness of the credit extended. These conditions or requirements are not only legal but customary in the banking industry. In this connection we have seen that Congress felt obliged to pretermit expansive statutory construction by explicitly excepting them from the reach of Section 1972 and hence from the jurisdictional grant of Section 1975.
Chase v Nesglo was decided in 1980, a mere ten years following enactment of the statute in 1970. Surely the court had at its disposal the complete legislative history and intent pertaining to the statute. If this statute's inception were 2008 rather than 1970, the list of banking products articulated in Congress as traditional banking products would include more families of bank products than only loan, discount, trust services, and deposit related products.
The Federal Reserve has published a list of banking products which are deemed to be within the realm of loans, discounts, trusts, and deposits for purposes of Section 106. Each is exempt as a traditional banking product (see below, " LIST X-A: BOG PUBLISHED VARIATIONS OF THE FOUR 1970 TRADITIONAL BANKING PRODUCTS"). Today, in the 21st Century, this article suggests that such list does not suffice.  Below, the list  " LIST X-A: BOG PUBLISHED VARIATIONS OF THE FOUR 1970 TRADITIONAL BANKING PRODUCTS" is compared to a list of permissible banking products which are not by statute deemed to be "traditional bank products"(see below, LIST X-B: 12 CFR § 225.28, the STATUTORY LIST OF PERMISSIBLE NONBANKING ACTIVITIES).
BHCs therefore do not offer combinations of these products, or, are constrained to not offer such combinations which will be deemed permissible in real-time reaction to market conditions and needs because  exemptions must be sought each and every time a bank looks to offer packages to customers. This is exactly the situation which Congress sought to avoid in 1970 for products deemed traditional as banking products.
  
V The 2003 Federal Reserve Proposed Interpretation
  
During August 2003 the Board of Governors of the Federal Reserve System issued Federal Reserve Docket No. OP-1158 , a Proposed Interpretation and Supervisory Guidance with Request for Public Comment of the Anti-Tying Restrictions of Section 106 of the Bank Holding Company Act Amendments of 1970. Public Comment was due October 31st, 2003.
One impetus for the proposed interpretation ("DOC OP-1158" hereafter) was the 2003 United States General Accounting Office GAO Report on Bank Tying writ for the Honorable John D. Dingell Ranking Minority Member Committee on Energy and Commerce House of Representatives. The 2003 GAO report was researched and writ to measure any illegal tying and under-pricing in contravention of Section 106. The GAO report stipulates that few formal complaints have ever been filed with regulatory agencies, and that some claims of unlawful tying are in fact lawful. The GAO report found that of those few claims which have formally been filed, most are unsupported by corresponding evidence. The GAO report also concluded that there was some confusion in the marketplace insofar as interpreting Section 106.
The GAO ("GAO-04-3") report also concluded that since documentation of an illegal tie would not show up in a bank’s files, the Federal Reserve and OCC should consider additional enforcement measures, such as publicizing manners by which banks and bank customers could contact the agencies with questions for guidance regarding specific transactions or to file complaints about suspected unlawful tying. The study also recommended that the Federal Reserve evaluate loan pricing behavior and publish such  evaluation. In addressing these findings, GAO-04-3 notes that the Board of Governors of the Federal Reserve System and the Office of the Comptroller of the Currency reviewed the anti-tying policies of large commercial banks, found that the banks had adequate policies and procedures in place to prevent and detect tying, and found no unlawful tying arrangements.
The Federal Reserve and the OCC also found that banks varied in their interpretation of Section 106. In late 2003 the Board of Governors of the Federal Reserve and the OCC then issued the Proposed Interpretation of Section 106 and requested Public Comment on the Proposed Interpretation. The stated goal of the Proposed Interpretation was to offer guidance in interpreting the statute, and to keep banks and their customers better informed of Section 106.

VI Introduction to Public Comments to DOC OP-1158 re: Market Power and re: Relationship Management
 
The Proposed Interpretation, DOC OP-1158, requested public comment on the interpretation by October 31, 2003. Today in 2008 the Federal Reserve has articulated in varied forums that no final interpretation is forthcoming.
The two primary matters of contention articulated in the public comment are not small matters. A consensus is clear amongst businesses, Bank Holding Companies, and the firms which represent them that there is currently a problem in interpretation of the statute insofar as market power and mixed product arrangements are concerned.
For example, the New York based law firm Shearman and Sterling’s comment in response to the Federal Reserve’s Proposed Interpretation begins by stipulating in their comment that "We represent many of the largest banking and financial institutions in the world and have dealt extensively with the requirements of Section 106 in a wide variety of transactions affecting them." The letter proceeds to identify market power and mixed product arrangements as areas problematic in the schemata of the statute, not adequately resolved or addressed by the proposed interpretation.  
The Association of the Bar of the City of New York ("New York City Bar"), also puts its weight behind its comments regarding the DOC OP-1158 Opinion and the insufficiency of either the statute or the interpretation regarding market power and mixed product arrangements/reasonable alternatives in both September 2003 comment and again March 2006 comment re: Section 106 to the Board of Governors of the Federal Reserve System. As each letter reminds us, the New York City Bar Association "is one of the oldest and largest local bar associations in the United States, with a current membership of over 22,000 lawyers.”
James A. Kaitz wrote in comment to the Federal Reserve  re: DOC OP-1158 on behalf of the Association for Financial Professionals that  "certain aspects of the proposal raise concerns and merit further exploration before the interpretation and supervisory guidance are finalized."    This sentiment was echoed throughout the financial services industry in public comments written by the New York City Bar Association Committee on Banking, prestigious law firms such as Shearman & Sterling, Arnold & Porter, and Simpson and Thatcher as well as Counsel to Bank of America and Citibank, and companies such as VISA, amongst others. Specifically, chief amongst the complaints were the two facets identified above.
While to date an official final interpretation following the DOC OP-1158 Proposed Interpretation has not been published by the Board of Governors, the Federal Reserve has commented by changing the BHC Supervision Manual. Section  3500.0, "Tie-In Considerations of the BHC Act.” That section was last amended December 2004, but the issues discussed in this paper have not been resolved.

VII Public Comment re: Market Power

Simpson, Thacher, and Bartlett wrote to the Board of Governors of the Federal Reserve in August 2005 on behalf of a group of banks- Bank of America, Citigroup, Deutsche Bank, JPMorgan Chase & Co., and UBS. The letter, specifically on the market power anomaly in antitrust jurisprudence, was but one in a series of comments which Simpson Thacher filed regarding DOC OP-1158 between 2003- 2007:
On June 27, 2005, the United States Supreme Court issued a decision, National Cable & Telecommunications Association v. Brand X Internet Services, 125 S.Ct. 2688 (2005)  which fully supports the bank group’s position that no court  precedent precludes the Board from interpreting Section 106 to be consistent with, and not broader than, the general antitrust laws.
Clyde Mitchell, adjunct professor of banking law at Fordham Law School, who practiced at White & Case for more than 38 years wrote in August 2005 in the New York Law Journal:
Although almost two years have elapsed since the proposal (referred to below) was issued, and notwithstanding numerous statements from the Federal Reserve Board that a final revision of the Proposal was imminent, the banking industry remains in a type of "Neverland" as well as being left in a disadvantaged competitive position vis a vis non bank lenders (mainly, investment banks that are not subsidiaries of Financial Holding Companies.
and
Lastly, the Brand X case referred to above clearly supports the Board's authority to require that the bank involved must have dominant market power in the desired product in order for the Anti-Tying Provisions to apply.
The New York City Bar  wrote as recently as March 31 2006 to the Board of Governors of the Federal Reserve System. In the view of the Association : "The Association of the Bar of the City of New York ("ABCNY" or the "Association") respectfully requests that the Board of Governors of the Federal Reserve System (the "Board") issue a final revision of its proposed interpretation and supervisory guidance (the "Proposed Interpretation") on the Anti-Tying Restrictions of Section 106 of the Bank Holding."
Chief among the complaints of the New York City Bar are problems associated with mixed product arrangements and market power. The effect of thesev points of contention are succinctly articulated in the March 2006 letter:
In today's financial markets, Section 106, as currently read, places traditional banks in a disadvantageous competitive position to those institutions which are not subject to its provisions, primarily investment banks and other non-bank lenders. This effect is clearly contrary to Congress' intentions in passing the Gramm-Leach-Bliley Act, which was enacted to create a level playing field among all financial institutions. It also contradicts the general purpose of Section 106 as an antitrust law which is to protect competition and not to restrain it.
John L. Walker,  Partner, at Simpson, Thacher, & Bartlett LLP, has provided the Board with figures demonstrating this anticompetitive effect  between investment banks and other non-bank lenders such as Bear Stearns, Goldman Sachs, Lehman Brothers, GE Financial Commercial, and Merrill Lynch compared to Bank Holding Companies subject to Section 106.
The Shearman and Sterling DOC OP-1158 letter states succinctly, "We have two major comments concerning the Proposal and three minor comments and suggestions."  Insofar as economic power is concerned, Shearman and Sterling specifically speaks to the issue: "The proposed interpretation states clearly the Board's belief that Section 106 does not require that a bank have any particular degree of market power as a prerequisite to finding a violation."
 Bank of America’s General Counsel, Paul Polking, states
Although the language of section 106 appears straightforward, it is in fact a very complex statute that has been subject to varied interpretations and uncertainties since its enactment in 1970. We appreciate the Board's efforts to bring a measure of clarity to its application. There are, however, a number of areas that Bank of America believes would benefit from further clarification.
Parts I and II respectively of the Bank of America letter contemplate mixed product arrangements and coercion (part and parcel of market power). Mr. Polking states the market power problem quite effectively, identifying first that DOC OP-1158 asserts that "…coercion is a sine qua non of an anti-tying violation under Section 106,"  while footnote 21 of DOC OP-1158 indicates:
Legislative history indicates that economic power, anti-competitive effects, and effects on interstate commerce are not necessary elements of a section 106 claim. See S. Rep. No. 1084, 91st Cong., 2d Sess. (1970), reprinted in 1970 U.S.C.C.A.N. 5519, 5558 (—Senate Report“) (Supplementary views of Sen. Brooke); Senate Report at 5547 (Supplementary views of Senators Bennett, Tower, Percy and Packwood); see also Integon Life Insurance Corp. v Browning, 989 F.2d 1143 (11th Cir. 1993); Amerifirst Properties, Inc. v. FDIC, 880 F.2d 821 (5th Cir. 1989); 62 FR 9290, 9313, Feb. 28, 1997; 59 FR 65473, Dec. 20, 1994.
Note that footnote 21 of DOC OP-1158 finds authority only in supplementary views of 1970 Congressional debate,  and only by case law decided in 1993, 13 years after Section 106 enactment.
In contemplation of  this predicament Mr. Polking on behalf of Bank of America  goes on to  articulate the problem succinctly:
It is axiomatic that, for a seller to be able to force a buyer, or to coerce a buyer, or to impose a condition or requirement on a buyer, the seller must have some form of power over the buyer. It is not sufficient to infer from the presence of conditions or requirements in a contract (in essence to infer from the mere of the contract itself), that a coercive tie has occurred.  
Thus BHC counsel grapple with a Catch-22: a customer need not show economic power, anti-competitive effects, or effects on interstate commerce as elements of a section 106 claim.  Moreover, BHCs find themselves in the position whereby there is a risk in offering mixed product combinations which are desired by customers but which may be deemed "coercive" by virtue of the fact that the customer, when choosing said product, may claim coercion for lack of "reasonable alternatives" offered by the offering BHC notwithstanding healthy competition in the market for those products.
 The resolution is to expand the "traditional products" in Section 106 such as to put permissible banking products where they belong- in the market. This, so that customers can once again enjoy the fruits of full service banking, and the ability to negotiate costs and fees based on a complete banking arrangement. Only distinctly marginal, truly non-traditional bank products should be subject to this "no man's land" of confusion. BHCs deserve to have precise knowledge as to what product offerings may subject them to liability in a manner which promotes offering banking products to banking customers. An expansion of traditional product language will benefit consumers and businesses alike, spurring competition for product offerings, and allowing discounts on packages.
 
VIII Public Comment re: The Relationship Managing, Mixed Products, and Reasonable Alternative Quandry
 
The second point of contention regarding Section 106, alluded to above, concerns relationship management, mixed product arrangements, and reasonable alternatives. A discussion on this point necessitates an adequate contemplation of the 'traditional product' exemption to Section 106, the exemption's legislative history, and the exemption's implications discussed above.
Mixed product arrangements come into the discussion when a bank offers a customer a choice of traditional products to fulfill an imposed requirement on another product such as a loan.
For example, in order to qualify for a loan, the customer is required to use deposit services at the bank, following the traditional product exemption. In addition, the bank is permitted to allow the customer to choose a non-traditional product in lieu of deposit services to qualify for the loan if and only if the bank offers and the customer retains the traditional product option (deposit services) to satisfy the condition.
The deposit service “traditional product” option in the above example is the required "reasonable alternative" which permits the bank to offer the "non-traditional" bank product option. This is a "mixed-product" arrangement. In practice, there are problems in application of the "reasonable alternative" option which should effect permissible “mixed product arrangements” where non-traditional product options are available to the customer without imperiling the bank. Furthermore, in practice, a bank’s exposure to potential liability from offering mixed product arrangements is at issue insofar as the extent to which the “reasonable alternative” option is applicable to retail as compared to corporate customers. The retail customer may claim to possess a lesser degree of sophistication than the corporate customer, begging the question as to what properly constitutes a “reasonable alternative” and exposing the BHC to potential liability.
The comments on this problematic facet of the statute are numerous, voiced alongside the comments cited above from Shearman and Stearling, Simpson, Thacher, New York City Bar, New York Clearing House, Arnold and Porter, Citigroup, Bank of America, VISA and many other entities. A few excerpts capturing the sentiment follow:
Jeffrey P. Neubert, President and CEO, The New York Clearing House LLC, wrote in comment to DOC OP-1158 with regards to the problems associated with determining "meaningful options" in mixed product relationships:
A customer-by-customer analysis would be a futile exercise, based on the bank’s subjective perception of customer need and assumptions regarding pricing of bank services and volume of transactions. In our view, the analysis would be speculative and, therefore, subject to second-guessing and challenge.
Furthermore, The Clearing House observes
Many of the civil actions brought against banks under Section 106 have involved counterclaims by defaulting borrowers, seeking to avoid payment of their loans. A mixed-product qualification that is based on individual subjective judgments could invite this type of litigation.
Shearman and Stearling comments specifically on mixed product relationships and the meaningful option conundrum: “We believe that the Board's proposal would be unfair to many banks and would be extremely difficult if not impossible to implement.”

The New York City Bar Association also comments on the “reasonable alternative” predicament:
Although we appreciate the Board's attempt to balance the permissibility of "relationship banking" with the policy rationale underlying the prohibition against the tying of traditional and non-traditional bank products, ABCNY questions whether the "meaningful option" criterion will prove workable in practice, particularly when a bank will need to make that determination on a prospective basis.
Lastly, for this instant presentation, John L. Walker writes to the Board of Governors of the Federal Reserve in 2004 on behalf of Bank of America, Citigroup, Deutsche Bank, JPMorgan Chase & Co.:
A customer-by-customer analysis of "meaningful choice" would be highly burdensome, and it could create additional legal risk for banks. First, it would be very difficult for a bank to obtain reliable information as to its customer's specific banking needs without requesting the information from the customer. The customer may not be inclined to provide the information and the very inquiry to the customer may involve the bank in a discussion of its product offerings that is not permitted under the Proposed Interpretation until after the bank's determination of its customer's needs.Moreover, the bank could be accused of imposing an illegal condition or requirement if it later declines to make a loan because it determines that the meaningful choice requirement cannot be satisfied with respect to that customer. Further, a customer-by-customer analysis could be subject to significant variations depending on the bank's assumptions with regard to both its customer and itself as to such variables as volume, price, timing, and profitability targets. As a result, the bank's analysis easily could be subject to second-guessing and challenge, thus increasing the bank's legal risk.
The Federal Reserve's Proposed Interpretation, DOC OP-1158 reads in pertinent part in its Section IV(A)(2), entitled "Mixed Product Relationships":
2. Mixed-product arrangements.
As discussed above, section 106 does not prohibit a bank from conditioning the grant of a loan to a customer on a requirement that the customer also obtain one or more traditional bank products, or a specified amount of traditional bank products, from the bank or its affiliates. In some cases, however, a bank may wish to provide a customer the freedom to choose whether to satisfy a condition imposed by the bank through the purchase of one or more traditional bank products or other non-traditional“ products (a mixed-product arrangement“). Allowing a bank to offer the customer the option of satisfying a condition by purchasing either traditional bank products or non-traditional products can provide benefits to the customer (by increasing the choices available to the customer) without requiring the customer to purchase any non-traditional product from the bank or an affiliate in violation of section 106.
DOC OP-1158 Section IV(A)(2) continues:
If the customer that is offered the mixed-product arrangement has a meaningful option to satisfy the bank‘s condition solely through the purchase of the traditional bank products included in the arrangement, then the bank‘s offer would not, in fact, require the customer to purchase any non-traditional product from the bank or its affiliates in violation of section 106.
Multiple problems exist. Of the many, one glaring problem is that the traditional product option in a mixed product arrangement may, over the life of the customer’s chosen package, no longer be available to that customer to satisfy the condition that a non-traditional product satisfied. This could happen for any number of reasons, including changed market conditions. At such instant, the BHC may be liable for imposing an illegal tie on the customer because the customer may allege that there is no longer a “reasonable traditional product alternative”.
The market changes too quickly for BHCs to request exemptions every time the BHC seeks to offer or change variations of banking products. Similarly, when a BHC offers combined products, they do so following an evaluation which takes into consideration pricing. Over time, by virtue of market fluctuation, a combination of products which includes permissible ties of either loan, discount, trust, or deposit service may no longer be profitable to the bank. What to do then, if in fact the customer wants to retain the one product but not the other? Sustain a non-profitable relationship? Furthermore, given the list of permissible banking activities, the odds are the relationship can be maintained. However, the BHC will incur the risk of liability if it gives the customer a list of several products, competitively priced, which are not deemed to be a 1970 traditional product which must be purchased for the customer to retain the desired product at the desired price.
In a somewhat admittedly silly analogy, which is illustrative although not 100% analogous, consider if McDonald's needed to make a separate application to a Federal Regulatory Agency every time it looked to offer a new combination of a Happy Meal if some entrees were considered “traditional fast food entrees” and others were not. Consider that fast food customers were tired of paying full price on side dishes and beverages. As a solution, McDonalds decides to offer a discount on side dishes and beverages when a customer buys certain fast food entrées. In the 1980s when adult Happy Meals were introduced, McDonalds applies to The Federal Regulatory Agency, (the ‘FFA,’ Fast Food Agency) for permission to tie its traditional entrees to discounted side dishes- which were, at the time, Big Macs, Filet-a-Fish, Quarter Pounders, and Burgers. Several years later, not only does McDonalds sell Angus 1/3 Pounders, but also Chicken McNuggets, Chicken Sandwiches, a Texan Burger, a Mexican Burger, and Salads. The FAA deems each of these new entrees permissible fast food entrees, but none are designated “traditional entrees,” as Big Mac, Filet-a-Fish, Quarter Pounders, and regular burgers were in 1980. Also, new side dishes have been introduced. And, seasonally, other entrees are introduced, as is the case when a popular movie is released, or, if Wendy’s or Burger King introduces a new entrée, such as a bacon double cheeseburger. Sometimes these products are short lived. Others become staples like the Big Mac.
Do beef and fish always constitute “reasonable alternatives” to the newly introduced chicken fast food entrée, or salad fast food entrée? Can McDonalds offer to sell sides and beverages at a discount if and only if the customer purchases a permissible, but non-traditional entrée? What if the FAA permits them to do so as long as Big Macs are offered as an alternative to salads, but then Big Macs are no longer available due to a Mad Cow Disease threat.  Does the price of Chicken McNuggets combined with fries and a cola have to go up, carrying no discount, as a result? When the breakfast menu is introduced, can side dishes like sausage or hash browns be sold at a discount when scrambled eggs are purchased? Does each of Wendy’s, Jack in the Box, Burger King, and Taco Bell need to make applications to the FAA  to do the same? What if Burger King innovates a seasonal winter entrée, or an entrée based on a hit movie, deemed a permissible entrée by FFA for which it gets permission to tie to side dishes at a discount. How long will it take the fast food restaurants to compete at a discount? Winter will be long gone by then, the movie long forgotten, and the entrée no longer saleable. The other fast food chains would be at a competitive disadvantage given the time lag such an exemption takes to process. What of super-sizing? Would it not matter that Wendy's and Burger King was available next door to each with lower prices for similar products? If McDonalds were trying to offer fries and beverages at a discount only if customers bought fuel for their cars, there would be a problem. But when only permissible fast food items are in the mix, there is no problem. It does not make sense to deem only 1980s permissible entrees as traditional entrees.
While such an analysis may seem somewhat absurd, the exercise of comparing the distinctions between the analogy’s “traditional fast food entrees” and “non-traditional fast food entrees” is similar to comparing the distinctions between lists X-A and X-B in Section X below, “LIST  X-A :  BOG PUBLISHED VARIATIONS OF THE FOUR 1970 TRADITIONAL BANKING PRODUCTS”,  and “LIST X-B:  12 CFR § 225.28, the STATUTORY LIST OF PERMISSIBLE NON-BANKING ACTIVITIES.”
The purpose of the Anti-Tying Traditional Products Exemption is to allow Bank Holding Companies versatility when offering sheer bank products. The products deemed 'traditional" for purposes of the Anti-Tying Statue are outdated and antiquated. (Consider that, in fact, there was no such thing as a ‘Happy Meal’ in 1970, the year that traditional activities were defined.  Not to mention that  Happy Meals are not the only innovation since 1970 As we are all aware, not only was there no such thing as the Internet nor cell phones, nor online banking nor ATMs, households didn’t even have answering machines in 1970. Happy Meals for kids weren’t introduced until 1979, for adults many years later. Apparently ‘supersizing’ in McDonalds began in the mid-90s.)

IX The Permanent Exceptions Should be Expanded to Recognize that there are More Than Four Products which Should be Construed as Essential to the Business of Banking
 
One manner to approach a solution to this dilemma is to expand the permanent exceptions codified as “Traditional Bank Products”. This, as opposed to expanding 12 CFR 225.7(b) (see Section XII below) or having the Board proclaim in a final interpretation that certain activities are legitimate and others are not. The text of Senator Bennett’s remarks and the Board of Governors response at the time supports this suggestion. The text of the statute itself is consistent with allowing both item by item exemptions on an individual basis, as well as an expansion of the permanent exceptions by the Board when consistent with the purposes of the statute.
An expansion of the exceptions is merited and will begin to address both the relationship management and market power points of contention.  Carl V. Howard, General Counsel at Citigroup, made a similar suggestion in comment to DOC OP-1158 when he wrote “If the Board is unwilling to conclude by interpretation that foreign exchange or derivatives are standard bank products, the Board should adopt a regulatory exemption determining such products to be standard bank products.”
It does not make sense in today's marketplace to limit the statutory exceptions to only those four product groups identified as traditional banking products during the Congressional Session of 1970. During that session, Congress recognized that Financial Services antitrust regulations must take into consideration the fact that the financial services industry must combine products and services to reach maximum productivity and competitiveness. This recognition was memorialized in the Section 106(b) statutory exceptions. The market, the industry, the courts, and legislators have embraced the fact that exceptions are necessary during almost 40 years of the statute's existence, validating the necessity for exceptions to be built into the anti-tying statute.
To expand the traditional bank product exceptions, it shall be necessary to recognize delineations between banking practices. Determinations need be made not only what are permissible banking products, but whether those products meet the criteria of traditional banking products for purposes of Section 106.
Certain banking practices deemed "permissible banking activities" other than loan, deposit, trust services, and discounts merit designation as exempt "traditional banking activities.” It does not necessitate a large stretch of the imagination to consider that today, most "permissible banking activities” function in the industry much as did the four products named in 1970.

X Focus: Permissible Activities and Traditional Activities
Section 4(c)(8) of The Bank Holding Company Act permits a bank holding company to engage, directly or through a subsidiary, in activities that the Board has determined by order or regulation to be “so closely related to banking or managing or controlling banks as to be a proper incident thereto.”
If so desired, the Board could codify the permissible activities for purposes of Section 106, in grades, from ‘Category A’ traditional activities through Category D.’ Activities such as processing and transmitting of data, for example, should be recognized by statute as a permanent exception to the anti-tying restrictions of section 106. Moreover, it should considered a "Category 'A' Exception" and the Federal Reserve should be enabled to designate Category B, Category C, and Category D exceptions based upon applications and public comment.
The categories could permit defined trial period for 5, 10 or 20 years depending upon category, such that a bank could know it had a safe harbor if the granted practice were deemed undesirable once in the stream of commerce. Likewise, a product deemed Category A might be put on watch in Category B if a certain volume of litigation presented itself with regard to such product.

The National Courier guidelines describe whether a particular activity meets the 'closely related to banking' test. An activity may be found to be closely related to banking if it is demonstrated that banks generally have in fact provided the proposed service; or that banks generally provide services that are operationally or functionally so similar to the proposed services as to equip them particularly well to provide the proposed service; or that banks generally provide services that are so integrally related to the proposed service as to require their provision in a specialized form. The Board's Regulation Y also permits bank holding companies to engage in activities that are incidental to closely related activities. The 'National Courier' court defined incidental activities as those that are necessary to the performance of closely related activities. By and large, each ‘Permissible Banking Activity’ merits analysis as to whether it is a “Traditional Banking Activity.”
It is certain that Congress in 1970 could not feasibly have recognized all products which should be permanently exempt. Congress did anticipate this, allowing for BOG review of practices. The 1970 Congress also recognized the fact that a process of individual applications seeking exemptions on a product by product basis is burdensome and counterproductive when considering basic banking practices such as loans, discounts, deposits, and trusts.
If making applications to the BOG for everyday banking product combinations were not unnecessarily cumbersome or burdensome, the permanent exceptions would be unnecessary. But they are necessary. If they were not writ into the statute, BHCs would need to make applications for each and every conceivable combination of products contemplated as consumer offerings which involved loans, discounts, trusts and deposits.
Today, there are countless instances where a bank is in the undesired analogous situation with regards to permissible banking products not deemed traditional. It is not a foregone conclusion that Congress in 1970 intended that the Board of Governors review additional applications for exemption ONLY on an individual product by product basis. Rather, it is here asserted that in 1970 Congress intended that the Board of Governors would review applications for exemption to the extent and for the purpose of expanding the items enumerated as traditional banking practices into the 21st Century and beyond.
 
For purposes of determining the validity of this assertion, attention is directed to compare and contrast those banking activities deemed to be “traditional activities” for purposes of Section 106 to those banking activities deemed “permissible activities under 12 CFR § 225.28.  Consider, first , the list which the Federal Reserve, in its 2003 Interpretation, DOC OP-1158, Section IV (a)(1) considers to be exempt from the statute as variations of the Section 106 articulated traditional practices of loan, discount, deposit and trust service:
LIST X-A:  Board of Governors Published Variations of the Four 1970 Traditional Banking Products
Products that fall within the scope of these terms include, among other things, the following:
- All types of extensions of credit, including loans, lines of credit, and backup lines of credit;
- Letters of credit and financial guarantees;
- Lease transactions that are the functional equivalent of an extension of credit;
- Credit derivatives where the bank or affiliate is the seller of credit protection;
- Acquiring, brokering, arranging, syndicating and servicing loans or other extensions of credit;
- All forms of deposit accounts, including demand, negotiable order of withdrawal (—NOW“), savings and time deposit accounts;
- Safe deposit box services;
- Escrow services;
- Payment and settlement services, including check clearing, check guaranty, ACH, wire transfer, and debit card services;
- Payroll services;
- Traveler‘s check and money order services;
- Cash management services;
- Services provided as trustee or guardian, or as executor or administrator of an estate;
- Discretionary asset management services provided as fiduciary;
- Custody services (including securities lending services); and
- Paying agent, transfer agent and registrar services.
Lastly, that Section IV (a)(1) of DOC OP-1158, demonstrates how this list applies to the anti-tying exemption formula, concluding (Italicized parentheticals are added to the instant article for emphasis and additional discussion which follows): 
Thus, for example, the traditional bank product exceptions permit a bank to condition the availability or price of a particular loan on (desired product; any product; permissible) a requirement that the customer maintain a specified amount of deposits (tied  product; traditional bank product; permissible )with the bank or its affiliates. Similarly, a bank may inform a customer that it will lend (or continue lending) (desired product; any banking product; permissible) to the customer only if the customer obtains cash management services (tied  product; traditional bank product; permissible ) from the bank or its affiliates. In both cases, the bank‘s actions are permissible because the tied products (deposits and cash management services) are traditional bank products.
A bank, however, may not require a customer seeking an auto loan (desired product; any banking product; permissible) from the bank to purchase automobile insurance (tied  product; not a  traditional bank product;im permissible )from the bank or from an insurance agency affiliate of the bank. Although the desired product (an auto loan) in this case is a traditional bank product, the tied product (automobile insurance) is not and, accordingly, the traditional bank product exceptions are not available for this transaction.
 
Now, compare this list to 12 CFR § 225.28, the statutory list of permissible nonbanking activities:
 LIST X-B:  12 CFR § 225.28 STATUTORY LIST OF PERMISSIBLE NON-BANKING ACTIVITIES
(a) Closely related nonbanking activities. The activities listed in paragraph (b) of this section are so closely related to banking or managing or controlling banks as to be a proper incident thereto, and may be engaged in by a bank holding company or its subsidiary in accordance with the requirements of this regulation.
(b) Activities determined by regulation to be permissible--
(1) Extending credit and servicing loans.
(2) Activities related to extending credit.
(3) Leasing personal or real property.
(4) Operating nonbank depository institutions
(5) Trust company functions.
(6) Financial and investment advisory activities.
(7) Agency transactional services for customer investments
(8) Investment transactions as principal--
(9) Management consulting and counseling activities
(10) Support services-- (i) Courier services. (ii) Printing and selling
MICR-encoded items.
(11) Insurance agency and underwriting
(12) Community development activities
(13) Money orders, savings bonds, and traveler's checks.
(14) Data processing.
Generally speaking, items 1, 2, 4, and 5 above are considered traditional. But the 13 other products and variations thereof are not. Each of these fourteen enumerated activities theoretically have product variations thereof  which would be as numerous as the variations of loan, trust, discount, and deposit products shown above at List X-A above, ‘BOG PUBLISHED VARIATIONS OF THE FOUR 1970 TRADITIONAL BANKING PRODUCTS.’ Thus, there is a large number of Permissible Activities which are not construed as Traditional Activities.
Therefore, the undesirable practice of necessarily seeking permission for every conceivable combination offering to the public is in fact a reality for a huge permutation of combinations of banking products. The reader can easily see the innumerable combinations by placing any of items 3 or 6-14 (and variations thereof) of the fourteen items in the positions of  both “tied product” and “desired product” to see a large list of combinations of permissible activities which need special application.
Similarly, anytime the desired product is one of the items in one LIST  X-A :  BOG PUBLISHED VARIATIONS OF THE FOUR 1970 TRADITIONAL BANKING PRODUCTS, and the tied product is any of items 3, 6-14, or any variation thereof, a special permission is necessary.
Lastly, in any instance where the customer has any of items 3, 6-14, or product variation thereof as an option to fulfill a mixed product arrangement requirement, a BHC is subject to potential liability as articulated above in the section on “reasonable alternatives.”
Likely, instead of seeking exemptions for any or every combination which were desirable to both bank and consumer depending upon changing market position, these offerings are simply not made at all. As demonstrated above, that eliminates a very large number of product offerings, many of which are desirable to both bank and customer, and would promote competition in new markets.
A mechanism is lacking to reconcile new developments in the marketplace that would otherwise allow banks to offer new products. Furthermore, the bank may not sell combinations of these products at any discount; in order to comply with the statute as interpreted and without additional traditional products, the only way the bank can comply is by charging full price for each individual product, regardless of how many individual products the customer chooses to purchase. This is a crux of the dilemma. Packaged products allow for discounts. Section 106 prohibits varying the price on product combinations which are not strictly permitted by the flawed statute. Section 106 puts a stranglehold on the permissible non-traditional banking products offered by BHCs.          
A contemplation of tying of permissible banking products is not analogous to software bundling or similar antitrust concerns of late. This situation is more closely analogous to, say, the popularity of  a) four wheel drive, or b) an MP3 player as options in a vehicle in 2008. When a manufacturer of automobiles offers to a customer a vehicle with 4 wheel drive or built in MP3 player, the manufacturer is not accused of tying products. The product available to the consumer is an automobile, end of story. There remains competition amongst manufacturers of automobiles. There may be incentives or not to get four wheel drive or MP3 compatibility. But it is not necessary for the manufacturer to get Federal Trade Commission approval to make the offering. It is unnecessary for manufacturers to offer “reasonable alternatives” for built in four- wheel drive or built in MP3 player. The manufacturer need not charge the full price of each component. The package automobile may carry a discount if purchased as a package.
If, however, a bank offers a package deal that ties a permissible product not deemed to be a variation of a “traditional bank product,” a reasonable alternative must be offered. Sometimes, that alternative may defeat the purpose (ie reduced pricing for consumer) of the package offered.
XI The Current 'Exemptions by Regulation' at 12 CFR 225.7 Are Not Enough- The Traditional Activities Need to be Expanded

Section IV of DOC OP-1158 is the proposed interpretation's analysis of the exceptions to the anti-tying statute. There, DOC OP-1158 footnote 37 indicates that the exceptions by regulation to Section 106 are set forth at 12 CFR 225.7(b).
A review of that regulation demonstrates that, for all intents and purposes, the exceptions by regulation are identical to the permanent exceptions legislated in 1970. These exceptions have been identified by inference through years of letters and comments by the industry as insufficient and out of date. Here 12 CFR 225.7 is reprinted for review:
§ 225.7 Exceptions to tying restrictions.
(a) Purpose. This section establishes exceptions to the anti-tying restrictions of section 106 of the Bank Holding Company Act Amendments of 1970 (12 U.S.C. 1971, 1972(1)). These exceptions are in addition to those in section 106. The section also restricts tying of electronic benefit transfer services by bank holding companies and their nonbank subsidiaries.
(b) Exceptions to statute. Subject to the limitations of paragraph (c) of this section, a bank may:
(1) Extension to affiliates of statutory exceptions preserving traditional banking relationships. Extend credit, lease or sell property of any kind, or furnish any service, or fix or vary the consideration for any of the foregoing, on the condition or requirement that a customer:
(i) Obtain a loan, discount, deposit, or trust service from an affiliate of the bank; or
(ii) Provide to an affiliate of the bank some additional credit, property, or service that the bank could require to be provided to itself pursuant to section 106(b)(1)(C) of the Bank Holding Company Act Amendments of 1970 (12 U.S.C. 1972(1)(C)).
(2) Safe harbor for combined-balance discounts. Vary the consideration for any product or package of products based on a customer's maintaining a combined minimum balance in certain products specified by the bank (eligible products), if:
(i) The bank offers deposits, and all such deposits are eligible products; and
(ii) Balances in deposits count at least as much as nondeposit products toward the minimum balance.
(3) Safe harbor for foreign transactions. Engage in any transaction with a customer if that customer is:
(i) A corporation, business, or other person (other than an individual) that:
(A) Is incorporated, chartered, or otherwise organized outside the United States; and
(B) Has its principal place of business outside the United States; or
(ii) An individual who is a citizen of a foreign country and is not resident in the United States.
(c) Limitations on exceptions. Any exception granted pursuant to this section shall terminate upon a finding by the Board that the arrangement is resulting in anti-competitive practices. The eligibility of a bank to operate under any exception granted pursuant to this section shall terminate upon a finding by the Board that its exercise of this authority is resulting in anti-competitive practices.
(d) Extension of statute to electronic benefit transfer services. A bank holding company or nonbank subsidiary of a bank holding company that provides electronic besnefit transfer services shall be subject to the anti-tying restrictions applicable to such services set forth in section 7(i)(11) of the Food Stamp Act of 1977 (7 U.S.C. 2016(i)(11)).
(e) For purposes of this section, bank has the meaning given that term in section 106(a) of the Bank Holding Company Act Amendments of 1970 (12 U.S.C. 1971), but shall also include a United States branch, agency, or commercial lending company subsidiary of a foreign bank that is subject to section 106 pursuant to section 8(d) of the International Banking Act of 1978 (12 U.S.C. 3106(d)), and any company made subject to section 106 by section 4(f)(9) or 4(h) of the BHC Act.

XII A Final Consideration Addressing Market Power and Tying in Section106 Enforcement: 2006 Supreme Court Decision.
The recent Supreme Court decision Illinois Tool Works Inc. v Independent Ink, Inc., 126 S. Ct. 1281 (2006) conclusively held that plaintiffs in antitrust matters carry the burden of proving that defendants have market power in the tying product even if the product is patented. The decision held that there is no presumption of market power for patented products alleged to be tying products. As indicated above, Section 106 interpretation requires no such showing. The fact that the Supreme Court recognized in Independent Ink that patent rights do not automatically confer market power further affords credibility to the longstanding lament amongst financial services providers that a showing of market power in all antitrust litigation is necessary for an illegal tie to exist.            
XIII     CONCLUSION

Congress exempted by statute the age old banking practice of tying traditional products in multiple product offerings rather than insisting that banks petition the Board of Governors for every multiple product offering. In 1970, Congress chose to enumerate four products; the list was never stipulated to be exhaustive, nor did Congress indicate that its intent was to articulate an exhaustive list of products which qualify as traditional bank products.
The Board can amend the exemption for products which have the qualifications of the traditional banking products specified by statute.
An appropriate test need by devised, and all permissible banking activities should be analyzed to determine which should be designated “traditional banking activities” for purposes of Section 106.
For example, banks that accept deposits in the 21st Century offer digital services in association with that deposit. That is, the bank will process financial data associated with the deposit. In the 21st Century, a customer does not carry a "Deposit Passbook" to a branch (as was done in 1970), nor have savings withdrawals marked in the passbook. Nor does such a customer spend only either cash or checks as in 1970.
In the 21st Century, the depositor expects that the deposit will be accessible through varied electronic channels. The bank must be in the business of processing and transmitting the financial data. All banks known to customers nationwide as banks where customers deposit money are in the business of data processing and transmission, or they are not in business. Is this not a “Traditional Banking Activity” in 2008?  
Permissible processing and transmitting of data is one permissible non-traditional banking product that should be recognized by statute as a permanent exception to the anti-tying restrictions of section 106. Moreover, it should considered a "Category 'A' Exception." So too should other permissible banking activities.
The wisdom of Section106 is the permanent exception for traditional bank products. The writers of the statute could not have enumerated each and every product for time in memoriam which would be a traditional banking product. Loans, discounts, trusts, and deposits are a good list to start with, but it would be an error to assume that list exhaustive. 
Today, the financial services entity which accepts customers deposits puts itself at a competitive disadvantage by deciding to engage in that line of business. A small BHC entity offering a combination of products for which there is ample market alternative options available is subject to censure and penalty through costly litigation. This stifles innovation by disallowing large and small banks alike from offering cutting edge combinations to a marketplace at competitive prices which would otherwise stimulate commercial activity.