Magazine article American Banker

Fed Gov. Defends Tying, Sees Capital Change

Magazine article American Banker

Fed Gov. Defends Tying, Sees Capital Change

Article excerpt

Federal Reserve Board Governor Susan S. Bies ventured into less-than-friendly territory Friday, defending a controversial banking industry tactic before the Securities Industry Association.

Investment bankers have been complaining for years that commercial banks are stealing market share by bundling products and offering customers a discount. Firms like Goldman Sachs have claimed that such "tying" is anti-competitive and, in some cases, illegal.

Using her speech to the securities group's annual convention in Boca Raton, Fla., to explain the practice, Ms. Bies said it "can be very confusing to nonbankers."

She also announced that banking and securities regulators plan to update capital standards for market risk.

The changes may be "minor" or "significant," she said, depending on the results of a study regulators have launched. When the current standard was adopted in 1996, "trading portfolios looked very different from today," she said, citing the growth in structured transactions, collateralized debt obligations, and credit derivatives.

"Both banking organizations and investment firms appear to be holding less-liquid instruments at fair value over longer time horizons," she said.

Back in August 2003 the Fed made a big splash on tying with a $3 million fine against the German bank WestLB AG for requiring corporate borrowers to use it for debt offerings.

At the same time, the Fed proposed guidelines permitting banks to condition the sale of a traditional product or service, such as a loan, on customers' purchase of another traditional product. But the proposal also would bar bankers from tying a traditional bank product to a nontraditional product, such as securities underwriting, unless the customer picked it from a list that included a traditional bank product or requested the deal.

Many expected the Fed to finalize those guidelines early this year, but they have been delayed by criticism. …

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