The Federal Reserve Board is considering a request to exempt the foreign operations of U.S. banks from anti-tying rules.
The petition, if granted, would represent the Fed's latest action to ease the anti-tying rules, which generally prevent a bank from requiring a customer to purchase one product in order to receive a second item.
Fed Associate General Counsel Richard Ashton mentioned the application in a speech last week, but he declined to elaborate on the Fed's views.
The Fed ruled in the spring that credit card banks may require consumers to maintain an account at a thrift, and it said banks may offer discounted inventory loans to car dealers that steer business their way.
U.S. banks need the new exemption if they hope to compete for underwriting business overseas, said H. Rodgin Cohen, a partner at Sullivan & Cromwell who represents New York Clearing House, which filed the application and a 27-page legal analysis on May 8.
Mr. Cohen said most investment bankers offer discounted mergers and acquisitions work predicated on a company's pledge to let the firm underwrite future public offerings.
"Investment bankers in the U.S. use that all the time," Mr. Cohen said, "but U.S. commercial banks can't provide that, even overseas. That means U.S. banks are not competitive."
Mr. Cohen said he is convinced the anti-tying rules apply only within the United States. But the penalty for violating the rules - triple the consumer's damages - is so severe that no bank was willing to act without first getting the Fed's approval, he said.
Congress imposed anti-tying rules to protect consumers and nonbank competitors from banks, which could use market clout to force borrowers to buy products.
The clearing house argued that U.S. banks do not have sufficient clout overseas to dominate any of the markets, even if they are allowed to tie products together. Also, it said foreign banks routinely bundle services together, often underpricing one service on the condition that the customer buy another.
"Congress' focus on small businesses and local markets strongly suggests that transactions outside the United States were not intended to be covered," wrote Norman Nelson, general counsel to the clearing house.
Finally, the clearing house noted that antitrust laws already prevent banks from using a foreign subsidiaries to affect competition in the United States. The anti-tying rules are unnecessarily duplicative, it said.
Steve Sunshine, a former antitrust lawyer for the Justice Department, said the banks have a strong case. A bank would need to control at least 30% of the market before tying would become a problem. No U.S. bank has that type of clout overseas, he said.
