A Federal Reserve Board proposal released Thursday would make it easier for a bank to buy securities from its section 20 affiliate.

A separate plan would relax constraints on bank lending to section 20 customers.

If approved, both would change the Fed's so-called 23-A restrictions, which are intended to prevent the misuse of a bank's resources by keeping all transactions with affiliates at arm's length.

The Fed said it would let banks buy securities from section 20 units if the assets are actively traded at a price that can be verified from independent sources. Bank lending to section 20 customers would be relaxed under two circumstances. First, if the affiliate is acting merely as a broker or riskless principal in the deal or, second, if the customer uses an existing line of credit that was not established to buy securities from the affiliate.

"The board proposes to grant these exemptions from section 23-A to permit customers to gain more flexible use of the services of insured depository institutions and their registered broker-dealer affiliates," the Fed said.

Comments are due at the central bank by July 21.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.