Chipping away at the firewalls separating banks from their securities affiliates, the Federal Reserve Board has granted Norwest Corp.'s request for authority to promote some securities services to bank customers.
In a letter dated Monday, the Fed said Norwest's subsidiary banks may engage in certain joint marketing practices with Norwest investment Services Inc., the Minneapolis firm's Section 20 unit.
Specifically, the Fed said, the subsidiary banks may tell customers about Norwest Investment Services and its offerings through joint seminars, direct mail, letters on bank stationery, and statement stuffers. The unit offers a range of brokerage products, including stocks, bonds, and mutual funds.
About 30 banks operate Section 20 subsidiaries, named for a section of the Glass-Steagall Act that bars banks from being "principally engaged" in the securities business. Since 1987, the Fed has granted banks limited powers to underwrite and deal in securities through Section 20 units.
"It will be easier for us as a Section 20 company to do some cross-marketing," said John McCune, chief executive of Norwest Investment Services.
Gilbert Schwartz, a law partner at Skadden, Arps Slate Meagher & Flom, Washington, said the Fed's move "will encourage people to put even more business in Section 20 subsidiaries because you're maintaining the ability to tap into the customer files of the bank."
In the same letter, the Fed empowered Norwest Investment Services to underwrite and deal in certain unrated municipal revenue bonds, a move that should broaden the market for the bonds of small municipalities.