Security Pacific, 2 Others Ask for Wider Powers

Three powerful U.S. banking companies, frustrated with the unwillingness of Congress to reform the nation’s banking laws, said Tuesday that they had asked the Federal Reserve Board to let them engage in key investment banking activities.

Chase Manhattan Corp., the second-largest U.S. banking company; J. P. Morgan & Co., the most profitable money-center bank, and Los Angeles-based Security Pacific Corp. said they filed applications with the Fed for permission to underwrite corporate debt.

Chase and Security Pacific said they also asked to be allowed to underwrite preferred stock. Other major banks, among them Citicorp and Bankers Trust New York Corp., have said they will file for permission to engage in further investment banking activities than they have been allowed.

A Reagan Administration source said the Fed was likely to approve the new powers even though some powerful members of Congress will object and securities firms will probably mount a court challenge.

The Fed, which regulates bank holding companies, has been more receptive to the banks’ calls for deregulation than Congress, which has dragged its feet on the matter.

Lobbying by Both Sides

Sen. William Proxmire (D-Wis.), who is stepping down as Senate Banking Committee chairman, last week urged the Fed to move ahead with banking deregulation. He sponsored a bill that would have gone a long way toward dismantling the Glass-Steagall Act. It cleared the Senate but got bogged down in the House.

The Glass-Steagall Act, enacted during the Depression of the 1930s, bars commercial banks from engaging in investment banking activities such as securities and debt underwriting. The purpose of the law was to segregate the commercial banking industry, which is protected by the government, from the investment banking industry.

U.S. commercial banks, led by the New York giants, have lobbied for years to have these barriers removed. Bankers argue that they already engage in underwriting activities abroad, where they are permitted to do so, and therefore have the expertise.

They also say they need new sources of income because the traditional business of lending is less profitable with the advent of commercial paper and other financing techniques.

The securities industry, representing Wall Street’s investment banks, has lobbied equally hard against allowing commercial banks into its turf.

An industry analyst said Fed Vice Chairman Manuel Johnson has said the Fed would look favorably on bank applications to underwrite equities, suggesting that the Fed also would favor letting banks underwrite debt and preferred stock.