WASHINGTON - A regulatory proposal combined with a recent Supreme Court decision may provide banks with ammunition for exploring new product and service frontiers.
The rule, proposed in November by the Office of the Comptroller of the Currency, would allow bank subsidiaries to engage in activities long prohibited to their parents.
When the effect of the new rule is fused with last week's Supreme Court decision buoying regulators' authority to allow banks to expand their wares, lawyers say banks could transform themselves into a new breed of financial services provider.
The high court decision last week "has strengthened the OCC's hand in expanding powers," said H. Rodgin Cohen, a partner at Sullivan & Cromwell in New York.
"If you add the opinion with the proposal on operating subsidiaries, that would allow for an expansion of activities," agreed Ronald R. Glancz, a partner at Venable, Baetjer, Howard & Civiletti. "It is an interesting combination."
The Supreme Court decided that a bank regulator "has discretion, within reasonable bounds, to permit banking activities" beyond those itemized in earlier banking statutes.
Comptroller Eugene A. Ludwig said, "I firmly believe that banks ought to be able to offer new financial services" that meet customers' needs and do not raise safety and soundness concerns. "The court's decision does make clear that we have the authority to determine what activities are closely related to banking," Mr. Ludwig said.
His agency may soon put that new authority to the test.
The deadline for comments on the OCC's pending rule on bank operating subsidiaries is Jan. 30. The rule could be finalized by spring.
Under it, banks are expected to apply for permission for their subsidiaries to engage in a range of new activities, such as underwriting securities, selling insurance products, operating data processing businesses, and securitizing mortgages. The agency has refused to say which activities it would permit.
"We have taken the position that the national bank charter is flexible, it is dynamic, that it allows national banks to be responsive to changing financial services markets and be responsive to the needs of their customers," OCC chief counsel Julie L. Williams said. "The Supreme Court's decision recognizes that there is that flexibility in the national bank's charter."
Banking trade groups are elated by the potent combination of the court decision and the OCC's proposal on bank subsidiaries.
"A final rule in light of this Supreme Court decision would be given a great deal more weight," said James D. McLaughlin, director of agency relations at the American Bankers Association.