Big banks overwhelmingly endorsed a Federal Reserve Board proposal to eliminate three of the firewalls that separate commercial and investment banking.

"The proposal is a highly constructive response to an increasingly competitive and global financial services industry," New York Clearing House president Jill M. Considine wrote in a comment letter that was due Sept. 3.

The Fed's proposal would allow employees and directors to work for both a bank and its affiliated securities unit. It also would permit a bank to market its securities affiliate's products and allow banks and securities units to purchase most assets from each other. It was published Aug. 5 in the Federal Register.

The plan didn't go over well with securities firms or small banks.

Securities Industry Association president Marc E. Lackritz charged the proposal could hamper competition by allowing banking companies to package investment and commercial banking products together. Independent securities firms, he noted, wouldn't be able to offer similar packages. Also, he said the proposal could torpedo congressional efforts to reform the Glass- Steagall Act.

Independent Bankers Association of America president Leland M. Stenehjem Jr. urged the Fed to prevent directors or senior executives of a securities unit from working for the bank. He also said the Fed should approve cross- marketing initiatives on a case-by-case basis, saying this would give the regulator a chance to weigh the competitive effects of each proposal.

But officials at big banks, who wrote most of the 47 letters submitted to the Fed, said the proposal is a step in the right direction.

Bank of Boston assistant general counsel Timothy A.G. Gerhold said banking companies currently operate separate risk-management and financial planning units for their banks and securities affiliates. Dropping the employment restriction would allow banks to save money by consolidating these operations, he said.

Eliminating the marketing restrictions would improve customer service by allowing companies to purchase all their products from a single salesman, wrote Larry LaRocco, president of the ABA Securities Association.

Also, separate rules prevent asset purchases that would harm either the bank or securities affiliate, wrote NationsBank Corp. assistant general counsel Richard K. Kim.

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