Taking another step toward dismantling the Glass- Steagall Act, the Federal Reserve has proposed to scrap a rule that bars bank holding companies from sharing directors and employees with securities firms.

A key effect of the plan would be to permit bank holding companies to put their own representatives on the boards of the mutual funds they operate. Banks, which serve as investment advisers to more than $400 billion in fund assets, have long complained that this restriction puts them at a competitive disadvantage to nonbanks.

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