WASHINGTON -- Loosening its anti-tying rules for the second time this year, the Federal Reserve Board has agreed to let banking companies give price breaks to customers who buy multiple services from nonbank affiliates.
The plan, which was adopted without discussion at a Fed meeting Wednesday, is expected to make it easier for banking companies to cross-sell the wide array of products offered by their nonbank subsidiaries. Examples of these units include brokerage, mortgage, leasing, and insurance companies.
For instance, retail customers who hold loans from a bank's mortgage subsidiary could qualify for discounts from a brokerage unit. And corporations that buy insurance from one bank subsidiary could get a price cut on data processing services from another.
The Fed included one caveat: the products must be available for purchase separately as well as in a package.
Richard M. Whiting, general counsel of the Bankers Roundtable, said the move should help banks compete with nonbank financial service companies, which face fewer restrictions on which products they can offer, at what prices, and in which combinations.
In adopting the rule, the Fed determined that such cross-selling activities does not violate the anti-tying rules of the Bank Holding Company Act. This law bars banks from requiring customers to purchase one service in order to receive a discount on another, though it exempts "traditional" products, such as savings and checking accounts.
Congress ordered the Fed in 1970 to institute the restrictions, saying the government needed to rein in large banks then dominating the market. Banking advocates have argued for several years, however, that the Fed should repeal the restrictions because other competitors have since entered the financial services market.
Last December, the Fed complied, approving a plan by First Union Corp. that allowed the company's discount brokerage services subsidiary to give price breaks to customers who keep minimum balances in deposit accounts at First Union's banking subsidiaries. In July, the Fed ruled that other banks could take advantage of the exemption.
The rule adopted this week goes a step further by enabling nonbank subsidiaries to band together and bundle their services.
"It makes it easier, if not easy, for banks to package products in cost-effective, attractive boxes, something nonbank companies have been doing for a long time," said Karen Shaw, an industry consultant with ISD/Shaw Inc.
The change allows banks to meet a customer need, said Allen W. Croessmann, managing director of retail marketing and investment services at Bank of Boston.
"It is the kind of thing that customers really expect that banks should be in a position to offer," Mr. Croessmann said. "Improvements in regulations along this line really are good things for the institutions and for the customers."
The changes alone are not enough to bring banks more business, Ms. Shaw said. Bankers need to overcome an industry culture that discourages aggressive marketing for that to happen, she said.
"People don't go into banks to buy CDs," Ms. Shaw said. "They go in because they want that CD to achieve a financial goal. Banks need to sell that final goal, not the CD."
In a separate action, the Fed loosened its interpretation of Section 20 of the Glass-Steagall Act, ruling that a bank can market certain government-backed obligations underwritten by its securities subsidiary.
The board said banks can market these securities only if they are "bank-eligible," meaning they are government-backed securities that a bank could underwrite without using a securities subsidiary.
"It is symbolic in that it is rolling back some of the unnecessary harshness of the firewalls," Mr. Whiting said.
Those firewalls, however, still block banks from marketing other securities, such as stocks and commercial paper, that a subsidiary may be offering.
