Magazine article American Banker

Lawmakers Moving to Loosen the Reins on Nonbank Banks

Magazine article American Banker

Lawmakers Moving to Loosen the Reins on Nonbank Banks

Article excerpt

Eight years after Congress put the brakes on banking activities by nonbanks, the mood on Capitol Hill may be changing.

Legislation recently approved by the House and Senate banking committees contains provisions that would allow nonbanks to grow more quickly and offer new credit card products.

The changes would relieve 23 nonbank banks of restrictions imposed by the Competitive Equality Banking Act. That 1987 law brought the 23 institutions under the Bank Holding Company Act and limited the growth of their banking assets to 7% a year. It also barred the creation of new nonbank banks.

The 23, known as "CEBA banks" or limited-purpose banks, include institutions owned by Prudential-Bache, Merrill Lynch & Co., and Dean Witter, Discover & Co.

The House version of Glass-Steagall repeal includes an amendment by Rep. Michael Castle, R-Del., to remove the cap. Similar language was included in the Senate Banking Committee's regulatory relief bill at the request of Chairman Alfonse M. D'Amato.

"These companies by nature are used to being innovative and fast growing," said Jeff Tassey, senior vice president of government and legal affairs for the American Financial Services Association, whose members include limited-purpose banks.

Many of the companies have circumvented the growth restrictions by securitizing loans, but that practice cuts into earnings, Mr. Tassey said. "They have securitized a lot of assets they otherwise would have held."

Bankers, however, remain opposed to encroachment into their businesses. …

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