WASHINGTON - The leadership change at the Securities and Exchange Commission could have a big impact on which broker-dealer activities banks are allowed to conduct directly.
SEC Chairman William H. Donaldson announced Wednesday that he would be stepping down at the end of the month, and the next day President Bush nominated Rep. Christopher Cox, R-Calif., to be Mr. Donaldson's successor.
If confirmed by the Senate, Rep. Cox would face a lengthy list of unresolved issues that have divided the SEC, including rules for mutual funds, hedge funds, and corporate governance.
Bankers will be paying especially close attention to what happens to the agency's interpretation of the Gramm-Leach-Bliley Act's requirement that banks "push out" certain securities activities to SEC-regulated affiliates.
A year ago the agency proposed rules under the rubric Regulation B that bankers said would be too strict, and it postponed final rules twice to consult with bankers and federal banking regulators. The final version is due Sept. 30, but the deadline could be pushed back again.
Some banking industry officials say that Rep. Cox's pro-business positions on other topics could spell good news for Reg B.
"You are going to get some changes, and hopefully it will be a more balanced approach," said Christopher Cole, regulatory counsel at the Independent Community Bankers of America.
But, "It's hard to predict what will happen with Reg B as far as Cox is concerned," because "he's never staked out a position on that," Mr. Cole said.
A spokesman for Rep. Cox said Friday that the nominee was not going to comment to the press on specific issues during the nomination process.
For six years Reg B has pitted bankers, regulators, and lawmakers from both parties against the SEC staff and some commissioners. SEC officials, led by the director of the division of market regulation, Annette L. Nazareth, have argued that banks should push out a wide range of trust and securities activities to SEC-regulated broker-dealers.
The proposal applies to banks that make more than $100,000 a year from securities transactions, are part of a bank holding company with assets of more than $1 billion, or have employees who are registered representatives of an affiliated broker-dealer.
It would include several limits on banks. For example, Reg B would prevent them from recruiting custodial customers with investment portfolios of less than $25 million. It would also bar banks from paying employees more than about $25 for each referral of a customer to a securities affiliate or third-party broker.
Some consumer attorneys have said that SEC oversight would ensure more protections for investors. Darryll Bolduc, a Charlotte-based attorney who represents bank customers and has supported Reg B in the past, declined to speculate how Rep. Cox's nomination would affect the proposal.
Bankers have said that Reg B would force them to get out of traditional lines of business. They have been supported by Federal Reserve Board Chairman Alan Greenspan as well as leading House and Senate lawmakers, who have said the SEC's proposal would be far harsher than the law intended.
But Mr. Donaldson aligned himself with the SEC's staff and two Democratic board members, Harvey J. Goldschmid and Roel C. Campos. Republican commissioners Paul S. Atkins and Cynthia A. Glassman contended that Reg B was too restrictive, but they did not seem to be making any progress convincing Mr. Donaldson.
A March 23 meeting between Mr. Donaldson and top bank regulators ended without a resolution. Some opponents were already discussing how to challenge Reg B in court. But most agree now that the prospects seem brighter.
"I think this is a major development for Reg B," said Donald Toumey, a partner at Sullivan & Cromwell LLP in New York. "I think that one of the questions that the new chairman will have to consider is, Is the approach that the SEC has been taking consistent with his own philosophy and the administration's philosophy?"
If Rep. Cox does become SEC chairman and sides with Mr. Atkins and Ms. Glassman, they would have enough votes to change the push-out plan.
One of the Democrats, Mr. Goldschmid, is expected to leave the SEC this summer. Ironically, Ms. Nazareth, the high-ranking SEC staff member who worked closely on Reg B, is said to be a top candidate to fill his seat. Her presence could ensure that the issue is not settled quietly.
