Fed Seeks to Erode Barrier Between Banks and Securities Business
Jun. 22, 1989
WASHINGTON (AP) _ The Federal Reserve Board has taken took a step that could result in the further erosion of the 56-year-old barrier between commercial banking and the securities business.
The Fed asked Wednesday for public comment on a proposal to permit subsidiaries of bank holding companies to double the amount of securities business they conduct.
Since the 1933 passage of the Glass-Steagall Act, which was enacted after the 1929 stock market crash rippled into a banking crisis, banks have been prohibited from being ''principally engaged'' in underwriting securities.
The Fed has interpreted that clause as allowing holding company subsidiaries to engage in securities underwriting up to 5 percent of their revenue. The agency is considering doubling the loophole to 10 percent and asked for comment on that by July 20.
Both moves are likely to displease leaders of the House and Senate Banking committees, which view changes in the Glass-Steagall Act as requiring congressional, not regulatory, action. Congressional banking leaders have promised to begin considering Glass-Steagall reform soon after Congress enacts President Bush's savings and loan bailout.
Rep. Henry B. Gonzalez, D-Texas, chairman of the House Banking Committee, strongly protested a Fed decision in January that added corporate bond underwriting to the list of securities activities open to banks.
This week, J.P. Morgan & Co. became the first bank given final permission to start exercising that power.
The Fed also has said that early next year it will begin considering opening corporate stock underwriting to banks.