HONOLULU - A proposal to tighten regulation of bank brokerages would impose a severe strain on small banks, the Independent Bankers Association of America says.
The IBAA has urged the National Association of Securities Dealers to delay action on the proposed rule, said Karen Thomas, the IBAA's regulatory counsel.
In an interview during the IBAA's annual convention here, Ms. Thomas also called on the NASD to drop, or at least clarify, several provisions aimed at insulating investment sales from deposit-gathering and other traditional banking activities.
The IBAA spelled out its concerns in a Feb. 10 comment letter to the NASD, a Washington-based group that sets professional standards for the brokerage industry.
A 60-day comment period on the NASD's proposed rules closed Wednesday, and NASD officials have said they expect to forward a final proposal this spring to the Securities and Exchange Commission, which has the authority to approve or reject the NASD's plans.
But the IBAA wants securities regulators to hold off until the NASD's recently formed committee of bank brokerage executives has had time to review the plan.
Ms. Thomas maintained that the NASD's proposed rule, which would create a special regulatory regime for brokerages that operate on bank premises, would give brokerage firms an unfair edge over banks.
"You have Merrill Lynch, which sells certificates of deposit along with mutual funds, and yet they're not subject to the same scrutiny that bank- based brokers are," Ms. Thomas said. "All we're asking for here is a level playing field."
She estimated that one-fifth of the IBAA's 5,600 members sell investment products, and many would be covered by the NASD rule.
The NASD, for its part, said it will not extend the comment period, which ran twice the usual length of 30 days. However, a spokesman said, "Reviewing the letters will be one of the first assignments of the (bank brokerage) committee when it meets in early spring."
The NASD's proposal has drawn strong criticism from the banking industry since it was unveiled in December. But until now, most of the concerns have come from big banks, which are generally more active in investment sales than community banks.
Ms. Thomas said, however, that small banks would be in for a tough time. Of particular concern, she said, is a provision mandating strict physical segregation of securities sales activities from the bank lobby area. While banking regulators encourage banks to separate banking and investment activities this way, the NASD proposal is firmer on the point.
That is a problem, according to the IBAA letter, because "many community banks and branches only have a small lobby area in the bank and no other offices or space in which to conduct business. Physically separate quarters for conducting securities activities would be impossible or impractical."
In other key areas, the IBAA is voicing concern that the NASD rule would:
*Ban all investment marketing material from bank lobbies and teller stations. Ms. Thomas said this would kill a bank's chances to cross-sell services and "give securities firms, which are under no such restrictions, an unfair advantage."
*Require that a bank-related brokerage register any branch where investment sales activity is conducted, no matter how little business the location does. This proposal, which does not now apply to nonbank brokerages, could tax the resources of small bank branches, which would have to maintain records of sales transactions and devote space for the books, Ms. Thomas said.
