Capital Briefs: More Powers for Limited-Purpose Banks?

Rep. Mike Castle wants financial modernization legislation to include new powers for limited-purpose banks, such as selling corporate credit cards and marketing via the Internet.

"Unnecessary restrictions" make it harder for limited-purpose banks to compete, the Delaware Republican said. The banks also should be able to cross-market products with their corporate parents, borrow from the Federal Reserve on the same basis as commercial banks, and acquire undercapitalized depository institutions, he said.

Stand-alone legislation introduced by Rep. Castle in May would grant those powers, but an aide said the changes would have a better chance of passing if tacked to a larger banking bill.

Limited-purpose banks are affiliated with parent companies whose businesses are not permitted to banks, such as securities, insurance, and commercial operations. These banks may make loans or take deposits, but not both. Most limited-purpose banks specialize in consumer credit cards.

At the urging of Rep. Castle and Sen. Robert Bennett, R-Utah, Congress last fall lifted the 7% annual growth cap on limited-purpose banks.