The Federal Reserve Board is opposing an application by Memphis-based National Bank of Commerce to let a subsidiary underwrite corporate debt.

In a comment letter to the Office of the Comptroller of the Currency, the Fed said bank subsidiaries should not be allowed to conduct activities barred to banks themselves. Doing so, the Fed wrote, would effectively extend the federal safety net to the subsidiaries, distort capital markets, and give banks an "unfair" advantage over nonbanks.

"The board does not believe that Congress has created, or intended to create, a statutory scheme that permits the express prohibitions in section 16 of the Glass-Steagall Act to be overridden," the agency wrote. To date, the Comptroller's Office has authorized banks to underwrite only municipal revenue bonds and other government obligations.

Comment letters from the American Bankers Association and the Financial Services Roundtable supported the application. The ABA argued that letting NBC Capital Markets Group underwrite corporate debt would benefit the bank and its investors, not undermine safety and soundness.

In a fourth and final comment letter, the California and Nevada credit union leagues opposed approval. Letting a bank subsidiary underwrite corporate debt would place U.S. taxpayers at risk and give banks a competitive advantage, the leagues said.

The comment period ended July 12. An OCC decision is pending. Congress is considering whether banks may conduct new activities directly or must house them in holding company units.

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