Nineteen ninety-six was a banner year for bankers. The industry gained wider securities underwriting powers, was freed of reams of cumbersome rules, and defeated the insurance lobby in the courts, before regulators, and in Congress.

"It was a most remarkable year," said James D. McLaughlin, director of agency affairs at the American Bankers Association. "The breadth and extent of the regulatory expansions has been extraordinary."

Securities Powers

The Federal Reserve in September gave bank holding company section 20 units the right to exclude some securities earnings from the 10% cap on underwriting revenue. It later tore down three firewalls, one of which prevented the same bank employee from selling underwriting services, loans, and transaction accounts.

The Fed on Dec. 20 more than doubled, to 25%, the amount of revenue section 20 units may earn underwriting and dealing in commercial securities.

The Office of the Comptroller of the Currency, adopting its controversial operating-subsidiary rule in November, established a procedure that national banks may use to create subsidiaries to underwrite securities, sell insurance, or conduct scores of other activities the banks may engage in directly.

Merger applications

The OCC's so-called operating-subsidiary rule also streamlined national banks' applications for new branches. It sets a strict 45-day deadline for OCC action on all applications, with a 10-day extension possible when serious CRA issues are raised.

The OCC provisions closely parallel proposed changes to Regulation Y issued by the Fed in August. Those changes, expected to be finalized soon, would give the Fed 15 days to process most merger applications. It would also expand data processing powers, eliminate tying restrictions on nonbanks, and allow bank-run trusts to buy mutual funds advised by the bank.

Consumer regulations

The Fed also revamped consumer leasing rules. Starting in September , lenders will have to disclose the total cost of a lease and how monthly payments are calculated.

Regulators also took their first stabs at regulating electronic money and smart cards. The Federal Deposit Insurance Corp. issued a legal opinion in July stating that most smart cards do not qualify for deposit insurance. One exception: cards that deduct funds directly from a consumer's account after each purchase.

The Fed also proposed subjecting bank-issued smart cards to the consumer protections in Regulation E, which governs ATM, debit, and credit cards.

But the Fed carved out an exemption for cards under $100. Banks would have to warn consumers that they could not recover the value left on lost cards, but they wouldn't have to provide monthly statements, and vendors would not have to produce receipts for each purchase.

Congress, however, put the proposal on hold when it passed a law requiring the Fed to conduct a survey on smart card use before adopting any rules.


In one of the year's biggest victories, the Supreme Court said in February that states must permit national banks to sell insurance from places with fewer than 5,000 residents.

In the fall the OCC capitalized on the Barnett Banks ruling, issuing guidelines that limit the authority of states to regulate insurance sales by national banks and allowing bankers to sell insurance to customers outside of small towns, including from bank branches in major cities.

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