The Federal Reserve Board proposed Wednesday that bank holding company affiliates be allowed to more than double the proportion of revenue they can earn from underwriting and selling commercial securities.

The so-called section 20 securities affiliates would be able to get up to 25% of revenue from activities from which banks were historically barred. The current cap is 10% of the total earned from the underwriting and sale of government securities.

The Fed also proposed eliminating several "firewalls" that insulate commercial banks from affiliates' investment banking activities.

Banking industry officials hailed the proposal, which would bring the first change in underwriting-income limits since 1990.

"This is great news," said Rachel Robbins, general counsel at J.P. Morgan. "It is something that is clearly long overdue and is well within existing law. We are gratified the Fed is responding to the industry's request for greater flexibility."

"This helps us reduce costs and it makes for a more efficient and effective management of the investment banking component," said Shiv Krishman, president of Key Capital Markets Inc. "It is a very good step in the right direction."

The American Bankers Association and other trade groups petitioned the Fed in June to raise the percentage limit, saying it was clear that Congress wasn't going to repeal the Glass-Steagall Act - the Depression-era law that imposed securities restrictions on banks.

House Banking Committee Chairman Jim Leach had told Fed Chairman Alan Greenspan that there were no legal impediments to the central bank's raising the underwriting ceiling.

The Fed had previously been holding back, saying it wanted to give Congress time to reform Glass-Steagall.

In a separate proposal, the Fed said it wants to eliminate rules that prevent directors, officers, and employees from working for banks and their section 20 affiliates. It also wants to let banks and thrifts serve as agents to help market the section 20s' services, and to allow banks and thrifts to purchase and sell assets to their section 20 affiliates.

In another proposal Wednesday, the Fed sought to clarify the accounting treatment of investment grade securities held by a section 20 subsidiary. The Fed said interest from these securities would not count toward the revenue limit because these were instruments that the bank could hold in its own account.

Larry LaRocco, managing director of the ABA Securities Association, said the Fed's plan would allow the commercial banking industry to vie for a bigger piece of the lucrative investment banking pie.

"This is very good news," he said. "We commend the Fed for speedy action and their targeted relief."

Richard Whiting, the Bankers Roundtable general counsel, called the proposal a "progressive step toward a more competitive and efficient securities market ... By doing this, they will allow for bank subsidiaries to be more competitive in offering securities services to individuals and companies."

Ms. Robbins said the Fed's action should intensify the industry's efforts to get Congress to repeal the Glass-Steagall Act.

Comments are due Sept. 30 on the revenue-limit provision and Sept. 3 for the firewall and accounting proposals.

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