In 1987, when commercial banks won permission from the Federal Reserve to underwrite and deal in securities, only five banks set up the necessary section 20 subsidiaries.
Since then the number has grown nearly ninefold. In September BB&T Corp. received approval to set up the nation's 44th section 20.
Commercial banks are using the units to move into businesses that were once the exclusive preserve of Wall Street, such as high-yield bond underwriting and stock offerings.
The first five section 20s were set up by Bankers Trust New York Corp., Chase Manhattan Corp., Citicorp, J.P. Morgan & Co., and PNC Financial Corp. But the Fed's decision this year to eliminate most of the firewalls that separate such units from commercial banks has made investment banking even more attractive to a wider range of banks.
This year four banks have built new securities units, and several others have said they were considering doing so or had plans in place.
All section 20s have Tier 1 powers-authorization to underwrite and deal in certain municipal revenue bonds, mortgage-related securities, commercial paper, and consumer-receivable-related securities.
Twenty-seven section 20s now also have Tier 2 powers, which allow them to underwrite and deal in corporate debt and equity.
Banc One Corp., First Union Corp., KeyCorp, and BankBoston Corp. received Tier 2 powers this year, and several other banks, including SunTrust Banks Inc., CoreStates Financial Corp., and Fleet Financial Group, have said they plan to apply for such powers.
Two institutions, Barclays Bank PLC and First of America Bank Corp., have corporate debt but not equity powers.
Allied Irish Banks PLC obtained its section 20 unit this year by buying Dauphin Deposit Corp. BOK Financial Corp., with $5.2 billion in assets, is the smallest holding company with a section 20 affiliate.
