U.S. proposes giving banks wider business leeway

November 29, 1994|By New York Times News Service

WASHINGTON -- In a step that could lead to big banks selling real estate, computer services or possibly even securities, government regulators proposed rules yesterday that would allow federally chartered banks to enter new lines of business.

The proposals represent the latest erosion of the Glass-Steagall Act, the landmark law that for 61 years has largely barred commercial banks from trading securities.

Enacted during the Great Depression in response to the stock market speculation that sank many banks in the early 1930s, the act was aimed at limiting banks to more conservative practices that, at least in theory, would be less likely to produce large losses and threaten depositors' savings.

The new rules would allow banks to set up subsidiaries that could undertake any activity "incidental to or within the business of banking." Until now, subsidiaries of federally chartered banks have been limited almost exclusively to banking.

The proposed regulations lay the legal framework for banks to seek permission to trade securities and enter other lines of business. The final decision to grant approval, however, would remain with the Office of the Comptroller of the Currency, the federal bank regulatory agency that issued yesterday's proposal.

Comptroller Eugene A. Ludwig refused to say yesterday whether the agency would approve applications to trade securities. But Julie L. Williams, chief counsel of the comptroller's office, said the intention was to allow banks to expand into other businesses.

"What we're proposing to do," she said, "is make more flexible the standard for what operating subsidiaries can do."

The new regulations, which are subject to a 60-day public comment period and months of review after that, also would allow banks to own only 51 percent of the operating subsidiaries, compared with 80 percent now. The lower requirement would make it easier for banks to form joint ventures with other companies.

Experts differed over what types of businesses banks would be most likely to enter.

H. Rodgin Cohen, a New York banking lawyer familiar with yesterday's proposals, said the proposed regulations most likely would lead to banks' going into real estate brokerage and into processing data for other companies.

But Russell J. Bruemmer, a Washington banking lawyer, said banks were more likely to use the regulations to pursue new powers to sell insurance and securities.

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