WASHINGTON -- The Federal Reserve Board yesterday proposed changes it said would make it easier for banks to offer new products and acquire other financial institutions.
The proposal would reduce the number of steps bank holding companies must take when they apply to the central bank to expand operations, whether through purchasing another institution or offering new services.
The plan also would enable such institutions to broaden the scope of derivatives trading, the Fed said.
The Fed's action is an effort to update its regulations to grant the bank holding companies it supervises the same powers enjoyed by banks outside its jurisdiction.
Alan Greenspan, the Federal Reserve chairman, dubbed the proposal "quite an extraordinary effort," adding that recent technology in the financial system has made some of the central bank's regulations "utterly irrelevant."
Specifically under the proposal, 30 percent of a bank holding company's total revenues could come from nonfinancial data processing and management consulting activities.
The proposed rule would affect the bank holding companies regulated by the Fed, including Banc One Corp. and First Union Corp.
A bank holding company is a corporation that oversees and controls several individual banking institutions.
Bankers have complained for years that the application process is too cumbersome, and their representatives welcomed the proposal.
"The important thing was that it seemed to signal that the Fed is supportive of bank holding companies being competitive with other financial providers, and they don't intend to create unnecessary roadblocks to bank holding companies competing in the financial marketplace," said Paul Smith, a senior counsel at the American Bankers Association.
The proposal would make it easier, and cheaper for banks to merge, but it's unclear whether the proposal will increase the number of mergers in the industry.
"I'm not sure this will be a big trigger for someone to go out and merge, but it will reduce the cost when one is undertaken," said Alfred Pollard, senior director for legislative affairs at the Bankers Roundtable.
Well-managed banks would qualify for a streamlined 15-day notice process for proposed bank mergers and acquisitions. The Fed said 50 percent of the applications it received last year would have qualified for the expedited procedure.
"This goes to the heart of what I call regulatory burden relief," Pollard said. "It seems to be a positive effort at pulling together different rules into a coherent hole."
The plan also would make it easier for bank holding companies to offer new services.
For example, institutions must now file a separate application with the Fed for each new service, such as tax consulting, according to the ABA.
Under the proposal, a bank holding company could file a single application for several new lines of business.
Susan Phillips, the Federal Reserve Board governor who chairs the central bank's Committee on Supervisory and Regulatory Affairs, said it "may well" speed up the application process.
The Fed has also proposed allowing bank holding companies greater ability to link their products and services, on a discounted basis, by eliminating so-called "anti-tying" restrictions.
The restrictions prevent bank holding companies from linking the price of one product to the price of another.
Pub Date: 8/24/96