Academic journal article ABA Banking Journal

Banks to the Fed: Dual Banking Not Up for Grabs

Academic journal article ABA Banking Journal

Banks to the Fed: Dual Banking Not Up for Grabs

Article excerpt

Banks to Fed: Dual banking not up for grabs

All eyes are on FSLIC and the thrifts these days--and with some of the proposed solutions that have been made, there is ample reason. But ABA has also been hard at work opposing new challenges to a venerable tradition--the dual banking system. Fed Jumps in. The tussle began last November, when the Federal Reserve Board announced that it would seek to amend Regulation Y to assert the authority to approve the activities of subsidiaries of state-chartered banks owned by bank holding companies.

Why the interest? The Federal Reserve has been concerned about some of the activities states have permitted state-chartered banks to expand into.

In a letter to Federal Reserve Chairman Alan Greenspan, Donald G. Ogilvie, ABA's executive vice-president, expressed the industry's concern over the Fed's move to extend its control over state-chartered banks. Ogilvie said the proposal would "drastically alter the dual banking and federal regulatory systems." Action in court. Compounding the Fed's November move was the fact that an important court case involving a national bank was in the appeals stage. That case was American Insurance Association v. Robert L. Clarke, Comptroller of the Currency, et al.--known widely as the AMBAC case.

The primary legal issue in the original case was this: Had the Comptroller violated the National Bank Act and the Bank Holding Company Act by permitting a national bank to acquire a municipal bond insurer? The court ruled in the Comptroller's favor. The American Insurance Association appealed. Importance of AMBAC. The initial decision out of the appeals court raised the dual banking issue. The court wrote in its opinion that the Fed, in addition to the Comptroller, should approve applications by national banks within a holding company seeking to establish or acquire subsidiaries.

So the AMBAC case took on extra importance for banks. In addition to the very important insurance question was the issue of the Fed's jurisdiction over the subsidiaries of national banks that in turn are owned by a bank holding companies--clearly a potential challenge to the dual banking systems.

Many observers said that the appeals court had inadvertently raised the dual banking issue. …

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