Magazine article American Banker

Dingell Pushes for Study of Illegal Links in Bond Dealings

Magazine article American Banker

Dingell Pushes for Study of Illegal Links in Bond Dealings

Article excerpt

WASHINGTON - The chairman of the House Energy and Commerce Committee has turned up the heat on the Securities and Exchange Commission to investigate whether banks are illegally pressuring municipal issuers for a share of bond underwritings in exchange for providing letters of credit for such deals.

At the same time, Rep. John Dingell D-Mich., is continuing to push the SEC to decide whether bond rating agencies should be regulated.

In a letter last week, Rep. Dingell gave SEC Chairman Richard Breeden until July 31 to respond to his request that the SEC staff help the House panel draft legislation to regulate rating agencies.

Strings Attached to Credits

In another letter, Rep. Dingell gave Mr. Breeden until Aug. 14 to supply a report on whether some banks are using "trying" arrangements to force issuers into giving the bank a share of a bond underwriting in exchange for providing a letter of credit or other credit enhancement to back the deal.

Tying would occur when an issuer approaching a bank for a letter of credit or other credit enhancement is told the bank will provide the service only if the issuer makes the bank one of the underwriters in the deal. The practice is specifically barred by the Bank Holding Company Act of 1970.

Rep. Dingell's letter came in response to two speeches last spring by SEC Commissioner Richard Roberts, who told the Bond Club of Virginia that he had been receiving complaints about alleged bank tying. Mr. Roberts said he would seek regulations, if necessary, to block such practices. …

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