Commercial Paper Ruling a Boon to Banks; Fed Ruling Favors Bankers Trust, Opens Door to Others; Securities Industry Fight to Continue

Article excerpt

The fight isn't over yet, but the judges' cards have the banking industry shaping up as a winner in the commercial paper arena. Five years after it first was challenged on the subject, the Federal Reserve Board last week issued a 49-page legal decision upholding Banking Trust Co.'s commercial paper operations.

The document also detailed the conditions under which banks may sell commercial paper, generally, short-term corporate obligations that have traditionally been underwritten by the securities industry. Banks could gain a considerably larger role in the market for these obligations, estimated at $230 billion.

And banks have Paul Volcker, never a lightweight in such matters, in their corner. The Federal Reserve chairman urged Congress to grant banks the authority to sell commercial paper, calling such authorization "a more straightforward way of proceeding."

The Securities Industry Association, which has fought the Fed and Bankers Trust in court since 1980, expressed "dissappointment" over ruling and said it would "unquestionably have a role" in district court proceedings on the subject. The board's decision was filed last week with the U.S. District Court for the District of Columbia, which is expected to act as a referee. …