For 2d Time, OCC Lets Bank Underwrite Municipal Bonds

National Bank of Commerce, Memphis, has been granted authority to underwrite municipal revenue bonds directly in a subsidiary- only the second application for such powers to be approved by the Office of the Comptroller of the Currency.

The Oct. 20 approval has not been formally released, but it follows the OCC's decision last December to let Zions First National Bank, Salt Lake City, directly underwrite municipal revenue bonds.

In 1996, the OCC created a controversy when it decided to let banks use direct operating subsidiaries to pursue activities they are barred from conducting. Until then, such activities could be done only in a holding company subsidiary.

Only two applications for operating subsidiary powers were filed: one from Zions and the other from Bank of America (then-NationsBank), which wanted to use an operating subsidiary to develop real estate. That application is still pending.

National Bank of Commerce filed its request Aug. 7.

The OCC's decision, which tracks the Zions ruling, said National Bank of Commerce may broaden the underwriting practices of its NBC Capital Markets Group Inc. to include all municipal revenue bonds. NBC Capital already is an underwriter and dealer for government securities and municipal general obligation bonds, while providing brokerage and investment advisory services.

"The risks associated with underwriting and dealing in revenue bonds are the same risks already assumed by the bank in underwriting and dealing in bank-eligible securities and investing in revenue bonds," the OCC said.

When it approved the Zions application, OCC said four major securities firms had eliminated their municipal financing businesses since 1995, and three to four other firms have cut back business.

"This reduction in competition has led to higher financing costs for many public issuers, particularly smaller communities," the OCC said.

The agency, among other limits, said revenue from underwriting activities traditionally barred to banks may only account for 25% of NBC Capital's gross revenues-the same cap the Federal Reserve Board imposes on the section 20 subsidiaries of bank holding companies.

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