ROANOKE TIMES
Copyright (c) 1996, Roanoke Times
DATE: Thursday, November 21, 1996 TAG: 9611210051
SECTION: BUSINESS PAGE: B-5 EDITION: METRO
DATELINE: WASHINGTON
SOURCE: Associated Press
The comptroller of the currency announced new rules Wednesday to further modernize banking by opening the door for banks to expand into securities, insurance and other banking-related businesses.
Comptroller Eugene Ludwig called the new rules ``a small step forward'' that could eventually result in ``a broader and less expensive array of financial services for American's communities and consumers.''
The complex rule package essentially contains two parts: a streamlined application process, and a procedure to let healthy, well-managed banks conduct a broader range of businesses in new operating subsidiaries.
Ludwig emphasized his agency, an arm of the Treasury Department that regulates 2,800 nationally chartered banks, will proceed cautiously in letting banks expand into new businesses.
``We're going to look at this on a case-by-case basis, and safety and soundness is No.1,'' Ludwig told a packed meeting of the Exchequer Club, a banking group.
The new rule is the latest expansion of banking powers by federal regulators and further blurs the lines between commercial banks and Wall Street.
In the 1980s, the Federal Reserve began allowing major banks to set up affiliates in the holding company level to deal in stocks and bonds. While banks welcomed these new powers, they complained that the securities units were expensive to establish and were limited to bringing in only 10 percent of the banking company's revenues.
The Fed is expected later this year to loosen the rules and let banks' securities affiliates bring in up to 25 percent of the banking company's revenues from securities dealings.
Ludwig's initiative met with a mixed reception. Treasury Secretary Robert Rubin supported him, saying the rules provide ``an orderly, prudent and public process'' to let banks expand their businesses while providing sufficient safeguards.
``Allowing banks to diversify their financial service activities will reduce the risk and strengthen the banking system over the long term,'' Rubin said.
Wall Street's biggest trade group, the Securities Industry Association, along with the American Council of Life Insurance and Senate Banking Chairman Alfonse D'Amato, R-N.Y., condemned Ludwig's move.
D'Amato said he's ``deeply troubled that the action may subject insured banks to excessive risks and expose the bank insurance funds, and therefore the taxpayers, to unnecessary liability.''
D'Amato said banks are at greater risk if new securities and insurance business are conducted in a bank's subsidiary instead of at the holding company level, where presumably the risks could be better isolated in a separately capitalized business.
LENGTH: Medium: 59 linesby CNB