Fed Expands Banks’ Securities Power
The Federal Reserve Board said Wednesday that banks with securities subsidiaries could advise average customers as well as large institutions on investments in stocks.
The decision further eroded the longstanding separation between banks and securities firms.
While commercial banks have been pushing to expand into the lucrative securities business, they have been limited by regulations to offering advice on securities investments only to institutional investors such as pension funds.
Through discount brokerage subsidiaries, banks also have been allowed to conduct trades directed by individual customers without advising them on the transactions. The change moves banks closer to the function of full-scale brokerages and was applauded by a spokesman at Bank of America in San Francisco, one of several big California banks operating a securities subsidiary.
The Fed granted a request by the Bank of New England Corp. to broaden its brokerage advisory powers. The Boston-based bank has $28.8 billion in assets and is the 19th-largest bank holding company in the country. Its subsidiary, New England Discount Brokerage Inc., already engages in securities brokerage services across the country.
In its 14-page decision, the Fed noted that it has already permitted bank holding company subsidiaries to offer investment advice for institutional customers without violating the Glass-Steagall Act, the 55-year-old law that restricts the securities activities of banking companies.
“The board does not believe that the expansion of this activity to retail customers alters that determination,” the Fed said.
When federal regulators granted commercial banks approval to give investment advice to their large institutional investors, the move was challenged in federal court by the Securities Industries Assn. but was unsuccessful.
An earlier decision by the Comptroller of the Currency, which regulates national banks, authorizing wide-ranging securities advisory services for NCNB National Bank of North Carolina was seen as clearing the way for the Fed to take a similar position.
Congress is considering legislation to repeal the Glass-Steagall Act and give banks powers to expand into new fields, but the securities industry and other groups are opposed to the changes.
