Fed Allows Bank Group to Buy Internet Banking Services Firm

The Federal Reserve Board has given a coalition of banks permission to buy Five Paces Software Inc., a company that provides Internet banking services.

The Fed said in orders made Tuesday that Cardinal Bancshares, Lexington, Ky.; Huntington Bancshares, Columbus, Ohio; Wachovia Corp., Winston-Salem, N.C.; and Area Bancshares, Owensboro, Ky., could invest in the high-tech company.

Five Paces' Internet services let consumers open checking, money market, and certificate of deposit accounts using their home computers. Customers also can use it to transfer funds among accounts, review checking account registers, and pay bills. The Fed said these activities are "closely related to banking" and thus permitted under the Bank Holding Company Act.

The orders contained a caution, however. The Fed noted that banks must review the security of their Internet banking systems and fix any weaknesses they detect.

"The board believes such analyses and evaluations would mitigate the risk that conducting banking transactions over the Internet would result in unsound banking practices," the Fed stated.

The Fed approved two orders. First, it gave Wachovia, Huntington, and Area permission to buy noncontrolling interests in Cardinal. Then it allowed Cardinal to buy Five Paces.

This is not Cardinal's first Internet venture. Its Security First Network Bank affiliate became the first cyberbank in May 1995.

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