WASHINGTON — The Federal Reserve Board on Thursday made it easier for banks to compete with brokerages by letting bank holding companies offer credit guarantees to customers of their securities affiliates and knocking down other barriers between the banking and securities businesses.
The Fed's actions, announced as proposed rules in January, eliminate most of the remaining restrictions that complicate banking companies' management of their securities affiliates.
Large banks such as J.P. Morgan & Co., Bankers Trust New York Corp., Fleet Financial Group, First Union Corp. and BankAmerica Corp. have welcomed the proposal. That is because the changes will improve the chances bank securities subsidiaries can match or beat underwriting terms offered by traditional investment banks such as Goldman Sachs & Co., which have criticized the plan.
"This is part of the ongoing relaxation of the Fed guidelines which is incrementally helping our efforts," said Mark Mahoney, the head of investment banking at First Union. "All this is very positive for expanding the activities of" banks' securities affiliates.
The move is the latest step in the Fed's march to expand the power of bank holding companies to underwrite and sell securities. In December, the board voted to more than double the revenue bank companies can earn from underwriting securities.
Currently, 43 U.S. bank holding companies operate securities subsidiaries, known as Section 20 companies, according to the Fed.
Investment bankers, however, have attacked the Fed's actions, saying regulators are giving banks a competitive advantage and not addressing the needs of the rest of the financial services industry. They argue that Congress, not federal agencies, should break down the walls between banks and securities firms.
The U.S. House Commerce Committee is considering the latest effort to repeal the 1933 Glass-Steagall Act that separated the banking and securities industries. Congress has tried and failed to overhaul the antiquated law for 20 years.
The Fed's actions also further increase the likelihood that U.S. banks, particularly regional retail lenders, will acquire securities firms--or expand their existing securities operations.