WASHINGTON -- The Federal Reserve Board voted Wednesday to make it easier for bank holding companies to offer discounts to customers who use a variety of their services.
The board unanimously approved a change to Regulation Y that will allow holding companies in many cases to tie together for pricing purposes the various products offered by all affiliates, including brokerage services.
The change becomes effective 30 days after its publication in the Federal Register.
The Fed, however, didn't remove all discounting restrictions. The new rules require a customer to maintain a traditional banking service - defined as either a loan, deposit, or trust - at an affiliate before qualifying for discounted services.
"We consider it significant," James D. McLaughlin, director of agency relations at the American Bankers Association. "But we are a bit disappointed it didn't go as far as it could have gone."
Mr. McLaughlin said the ABA wanted the Fed to allow banks to offer discounts on traditional services to customers with brokerage accounts.
He said securities dealers such as Merrill Lynch & Co., which operates a state-chartered bank in New Jersey, currently have this ability.
"That's what's unfair about this," Mr. McLaughlin said.
Nonbank Services Proposal
The Fed did take a small step toward freeing the banks. It agreed to publish for public comment a proposal to allow holding companies to tie together services at nonbank affiliates.
The proposed rule would apply only if the services were available separately, however, and it would not allow brokerage customers to receive discounted banking services.
This didn't go far enough for Gov. Edward W. Kelley, who said he believed the Fed should eliminate all restrictions on discount pricing.
"I hope we will be open to broadening beyond what is in this rule," Mr. Kelley said at the meeting.
But Fed general counsel Virgil Mattingly urged caution. "The step we are taking is a good first step," Mattingly said. "Depending upon how that goes, it could lead to the next step."
Richard M. Whiting, general counsel to the Bankers Roundtable, said the regulatory change recognizes the significant role holding companies now play in the industry.
The Fed instituted the restrictions in 1971 after Congress passed the Bank Holding Company Act Amendments of 1970. Section 106(b) of the act attempted to rein in big banks, which dominated the financial market at the time.
But today, the ABA's Mr. McLaughlin said, numerous nonbanks are competing for the same customers by offering discounts on related services that banks were unable to offer under existing law.
Governor John P. LaWare complained at the meeting that the Fed had reacted too slowly to the changing climate.
The public will have 45 days from the date the proposed rule is published in the Federal Register to comment.