Bankers have endorsed the Federal Reserve Board's first crack at Glass-Steagall reform, but urged the agency to go even further by letting bank employees work for securities companies.
In comment letters filed last month, bankers wrote that there is no reason for the Fed to continue applying an employment restriction from section 32 of the Depression-era law.
This restriction forbids employees of banks and holding companies from working for a mutual fund. The Fed proposed June 26 that holding company officials be exempted from the ban.
"The application of the prohibitions in section 32 to bank holding companies is not required by Congress, is not warranted, and is incFedsonsistent with board actions in recent years," wrote Bruce Moland, vice president and assistant general counsel at Norwest Corp.
Several industry officials, however, said the Fed should eliminate the ban for bank employees as well. That action might require congressional approval.
Dennis Gibbons, senior vice president of Wells Fargo & Co., wrote:"
"Removing the prohibition on interlocks between member banks and mutual funds would benefit the mutual funds and the shareholders by making available to the funds a pool of potential officers and directors who are extremely knowledgeable about the affairs of the funds and committed to the success of the funds."
The Fed's proposal would, for the first time, permit banking companies to put their officers on the boards of bank-advised mutual funds. Banking companies, which advise $400 billion in mutual fund assets, have long complained that the employment restriction gives non-banks a competitive advantage.
Sarah A. Miller, general counsel to the ABA Securities Association, wrote that more involvement by banks in the mutual fund industry would not harm consumers.
"All of the current protections afforded to mutual funds and their participants now apply when a mutual fund is advised by a bank-affiliated investment adviser," she said.
The proposal also would save institutions money by allowing the same employees to prepare tax forms and regulatory reports for both the mutual fund and the banking company, wrote Rachel F. Robbins, managing director and general counsel at J.P. Morgan & Co.
The Fed is expected to finalize the rule this fall.
Another proposal by the central bank, now out for comment, would ease other Glass-Steagall restrictions. This plan, issued Aug. 5, would let section 20 affiliates earn up to 25% of their income from commercial underwriting activities.
Comments are due Sept. 30.
