Cheers, Boos for OCC Plan To Let Banks Sell Products That Their Parents

WASHINGTON - The government's landmark proposal to allow bank subsidiaries to sell products and services barred for their parents was met with cheers from the industry, threats of legal action from securities firms, and protests from Congress.

About 50 banks, trade groups and other interested parties set out their views in comment letters to the Office of the Comptroller of the Currency. Comments were due in late January on the November proposal, which could change the face of banking by lowering the walls between commercial and investment banking.

Commercial banks applauded the OCC's proposed rule, which also would streamline the approval process for a number of business transactions. Many banks pointed to a recent Supreme Court decision in an annuities case as proof that the OCC has the authority to allow subsidiaries to engage in a range of new activities.

The rule "would eliminate many unnecessary delays, costs and other burdens contained in the current national bank-regulatory system," according to the Bankers Roundtable, which represents the nation's 125 largest banks.

"The result would be a more efficient and competitive national bank system, better serving national bank customers and shareholders," the trade group said.

First National Bank of Omaha wrote that it strongly supported the proposal. "Allowing national banks to engage in a broader range of activities through operating subsidiaries is vital to improving banks' competitiveness in today's marketplace, which can only benefit consumers," wrote David Wells, operations officer of the Omaha bank.

However, Rep. Charles E. Schumer, D-N.Y., urged the OCC to delay implementation of the rules until Congress can hold hearings on the matter.

"The proposed revisions represent potentially far-reaching changes in the legal and regulatory framework of bank powers as generally understood today," the New York congressman wrote. "As with any proposal that posits new activities for banks, it raises serious safety and soundness concerns that must be addressed in a more comprehensive, deliberative, and inclusive manner."

And Wall Street, along with real estate and insurance agents, sent strong warning signals that banks along with the OCC could expect to be sued if they attempt to offer products in competition with those groups.

The Securities Industry Association, in a 41-page comment letter, said the proposal "would permit the OCC to confer on national banks powers which they do not have under existing substantive law."

"Congress and not the OCC should make any change to existing law that would permit operating subsidiaries of national banks to engage in ineligible securities activities."

Community banks objected to the bulk of the proposal. While the Independent Bankers Association of America applauded the streamlined application process OCC proposed, the group labeled the proposal risky.

"IBAA is concerned about the risks and conflicts of interest that could be posed if operating subsidiaries are authorized to conduct non-bank- permissible activities," IBAA wrote. The trade group also protests that excluding most ATMs from the definition of a bank branch "could be used to circumvent state prohibitions against interstate branching."

The OCC proposal also drew fire from individuals. R.M. Young of Oakdale, Calif., wrote, "It is in my best interest as a taxpayer and multiline insurance agent that I speak out" against letting banks offer new services through their subsidiaries.

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