The Federal Reserve Board approved a final rule Wednesday that will free bank broker-dealers to extend credit on securities options.
The rule alters Regulation T, which governs broker-dealer activities at banks, holding companies, and their subsidiaries that sell securities.
Previously, bank brokers could not finance any portion of a customer's purchase of an option. Under the new rule, brokers can lend consumers a portion of the option's purchase price.
Banks don't have unlimited authority. The Fed said they must follow the loan limits for options set by each exchange and the Securities and Exchanges Commission. Those limits, which are expected to be released shortly, will prevent a creditor from lending a consumer the entire purchase price of an option.
The new rule also will ease a prohibition on banks financing more than half of a customer's debt securities purchase. Banks now will be allowed to exceed that limit for securities that receive one of the four highest grades from an independent rating agency, such as Moody's.
Banks still can't extend credit for 100% of the securities value. Rather, they must make a good faith estimate of the value of the security held as collateral.
There was little discussion among the governors about the final rule during the 15-minute meeting. Fed Gov. Janet L. Yellen called it a "tremendous accomplishment" that would help relieve the industry's compliance burden.
Fed staff attorney Scott Holz said in an interview that the change should reduce compliance costs without causing any safety-and-soundness worries.
The Fed expects to publish the rule next week. It takes effect 60 days later.
In a separate Reg T proposal, the Fed asked bankers for their suggestion on how the agency can reduce the rule's accounting and record-keeping burdens. Those comments are due in early July.
Also on Wednesday, the Fed proposed additional exemptions to its insider lending rules. The Fed recommended that bank executives who are not in policymaking jobs be exempt from all but one of Regulation O's restrictions.
Banks would not have to limit the size or amount of loans to these staffers, according to the Fed's plan. But they still couldn't offer executives preferential loan terms, like lower interest rates or a longer repayment period than other borrowers.
Comments will be due in about two months.