Allegations by members of the Securities industry Association that banks are illegally "tying" services have prompted action by federal banking regulators, but a lack of sufficient evidence is hampering their effort, the general counsel to the Office of the Comptroller of the Currency said yesterday.
"It is difficult to track down [the allegations] because most dealings are not done in writing, so there is no ~smoking gun'," said William P. Bowden Jr., the federal regulator's general counsel. "We have made requests from the SIA to provide us with specifics, but we've got very little."
At a panel discussion in New York sponsored by the Practicing Law Institute, Bowden said there will not be many more cases of specific enforcement action.
The comptroller's office, which is one of four federal bank regulating agencies, has reportedly already taken action against National City Corp. and is looking into actions against First Union Corp. for allegedly tying services. Bowden declined to comment on the status of any ongoing or pending investigations.
In the municipal market, the practice of tying usually occurs when a bank says it will not provide credit enhancement unless it is made underwriter of a deal. Tying is barred under the Bank Holding Company Act.
In a telephone interview yesterday, Richard Roberts, a commissioner on the Securities and Exchange Commission, said he was not surprised by Bowden's statements.
"The charges are hard to prove, no doubt. It's almost impossible unless you have a complainant step forward," Roberts said. " A borrower is not interested in alienating a potential lender. Only competitors [will step forward], and there is difficultly separating out the legitimate complaints from those from unhappy competitors who just lost.
Roberts, who has been active in trying to get members of the securities industry to identify firms guilty of tying and urge federal regulators to enforce the anti-tying rules, expressed frustration at the banking industry's failure to step forward to identify guilty parties. But he said he was encouraged by federal regulators' efforts, even if they do not produce widespread enforcement.
"I have always been unable to quantify the level of activity, but I know there is some," he said. "Even a few enforcement cases should create a much more positive compliance atmosphere."
In November 1992, the SIA asked its 650 members to supply evidence of tying to regulators. While the effort has resulted in few acts of enforcement, one outcome is the "Regulatory Uniformity Project," enacted at the bequest of the Clinton administration.
The goal of the project is to limit the regulatory burdens on banks by eliminating or coordinating overlapping legislation.
Virgil J. Mattingly Jr., general counsel of the Federal Reserve Board and a participant in the panel, said the board "initiated an internal inquiry of all Section 20 subsidiaries of bank holding companies" as a result of a petition filed by an investment bank last August.
The petition included 12 examples of violations of anti-tying laws and said the practice was "widespread" in the investment banking community. Mattingly did not identify the bank that filed the petition. However, several Wall Street firms, including Morgan Stanley & Co., complained publicly last summer that tying practices were increasing and provided federal regulators with evidence.
The Federal Reserve Board's inquiry was made to determine if the affiliates have appropriate policies, as well as training and audit programs covering tying practices. "Few cases in which violations were found" were revealed in the inquiry, Mattingly said.
He said tying allegations are difficult to prove because banks rarely demand tied services in writing, and because those deals where transgressions occur may never be finalized.
Bowden said the investigations were also bogged down by changes in the banking industry since the 1970 Bank Holding Act as well as questions regarding the "motivation behind the complaints" from competitors.
Officials of the Association of Bank Holding Companies were unavailable for comment.
Yesterday's discussion was entitled, "Bank Holding Company Act Anti-Tie-In Provisions: The New Congressional and Federal Reserve ~Hot Button ."
Aaron Task is the reporter for The Guarantor, The Bond Buyer's credit enhancement newsletter.