WASHINGTON Two key House members have asked the General Accounting Office to examine whether enforcement of the federal anti-tying statute should be beefed up in light of recent press reports that NationsBank may have violated the measure.
As an alternative, Rep. John Dingell, D-Mich, and Rep. Edward Markey, DMass., asked if the GAO believes Congress should consider repealing the law, given changes in the "financial landscape" that have taken away some of the competitive edge that banks historically have had over securities firms.
The questions came in a three-page letter that the two representatives sent to Charles A. Bowsher, comptroller general of the GAO. which is Congress' watchdog agency. Dingell chairs the House Energy and Commerce Committee. and Markey heads the panel's subcommittee on telecommunications and finance.
The chairmen requested the study following a story in The Bond Buyer on July 28 that quoted a letter sent on Jan. 19 by J.W. Davis, senior vice president of NationsBank, to Anthony Forest Products of El Dorado. Ark., telling the firm that the bank would supply a letter of credit for an industrial development bond issue only if the bank were chosen as underwriter.
Davis outlined three conditions that the issuer's board of directors must meet if it wants the bank to continue its "active solicitation" of a "relationship" with the Arkansas firm.
One of the "parameters" was giving NationsBank "the placement business for the marketing" of the underlying securities, since the bank "would not be in a position to offer a standalone letter of credit."
Section 106(b) of the federal Bank Holding Company Act of 1970 bars banks from requiring a customer to purchase one service as a condition of obtaining another, such as credit, in what has been dubbed the "tying" of services.
Some bond dealers charge that banks routinely squeeze them out of business through violations of the antitying law. Breaches are hard to prove, however, because bank officers usually apply verbal pressure rather than putting their conditions on paper, as Davis is alleged to have done, they say.
"Is there any evidence of banks mispricing loans or altering material terms in order to secure the underwriting business of prospective issuers?" Dingell and Markey ask in the letter. But they also ask: "As commercial banking changes, with alternative sources of credit increasingly made available, does the rationale for [the anti-tying law] remain?"
Dingell and Markey also sent a letter to Alan Greenspan, chairman of the Federal Reserve Board, and Eugene A. Ludwig, comptroller of the currency, asking whether they are investigating the NationsBank matter. A spokesman for the comptroller declined to comment because the agency has not yet responded to the letter. A Fed spokesman was not available. Sources however say banking regulators have launched a review.
The House chairmen said in their letter to Bowsher that they question the commitment of regulators to enforcing prohibitions on tying. They cited a Sept. 22, 1993, press interview in which Ludwig said he intends to take a "real good, hard look" at the appropriateness of the anti-tying provision. Also, the Fed redently approved final and proposed changes to its so-called Regulation Y that would "remove certain anti-tying restrictions for banks and their affiliates," the chairmen said.
"The conflicts of interest that arise as a result of tying may well jeopardize safety and soundess," Dingell and Markey said.
But commercial banking is changing, they said. Providing credit "is no longer the exclusive preserve of the commercial banking industry," they said, referring to securities firm lending.
The chairmen asked the GAO whether the "rationale" for section 106(b) remains. They want to know whether the "federal safety net" available only to banks still gives them leverage as lenders. And if so. is the leverage applied more with small or rural customers.
"Does access to the federal safety net provide banks with an economic advantage over competitors that enables banks to tie bankmg and non-banking products at a lower overall cost?" the letter asks. "Is there evidence of banks mispricing loans or altering material terms and conditions in order to secure the underwriting business of prospective issuers?"
Finally, given the "subtlety of tying abuses," would it be better to turn oversight and enforcement of the antitying law to the Justice Department? the congressmen ask. "How effective have the federal banking regulators been in deterring, identifying and punishing violations?"
"One reason that Section 106(b) passed was because people Were more susceptible to coercion from banks because [they were the only place to go] if you needed money," a Markey aide said. "But now that you can look to other sources for that credit, does section 106(b) make sense?
"Countervailing that, however, is that you still have banks as the only suppliers of credit with the full federal safety net, which makes it cheaper for banks to supply credit. So, while presumably you can go to other sources, the cheapest source may often be commercial banks," the aide said.
"Also, you have all these nonbanking products that banks now sell," the aide said. "So there may be greater opportunities for tying. The world has changed in ways that may make Section 106(b) more important, and less important, in some ways. [The committee wants to know] how does it all shake out."