Magazine article American Banker

Fed Plan Could Expand Investment Banking Ranks

Magazine article American Banker

Fed Plan Could Expand Investment Banking Ranks

Article excerpt

The Federal Reserve's proposal to ease some investment banking restrictions could finally give some of the nation's biggest commercial banks the flexibility they have sought to compete on Wall Street.

And the changes could entice some banks that have been sitting on the sidelines to enter the investment banking fray.

Although about 40 banks have so-called section 20 securities underwriting subsidiaries, a handful that have been extremely active stand to gain the most from the Fed's proposed changes. Among them: money-center banks such as BankAmerica Corp., Chase Manhattan Corp., Citicorp, Bankers Trust New York Corp., and J.P. Morgan & Co.

Most of these banks have been building their capital markets clout since 1987, when the Fed first permitted bank holding companies to build securities operations under section 20 of the Bank Holding Company Act.

More recently, superregionals such as First Union Corp. and NationsBank Corp. have ramped up their underwriting business.

Large banks like these are eager to expand their investment banking presence because their corporate clients are increasingly reaching beyond the loan market for funding.

"This is a natural extension of banks' capital raising activities," said Robert T. Slaymaker, chairman of BA Securities, a unit of BankAmerica Corp.

After watching Congress fail repeatedly to overhaul decades-old laws that separate investment and commercial banking, the Fed seized the initiative last week. It proposed to allow bank holding companies' securities subsidiaries to generate up to 25% of their revenue from underwriting corporate bonds and stocks, up from 10% at present.

The Fed also proposed to tear down some of the firewalls that banks have been forced to place between their commercial and investment banking activities.

The revenue cap has been "the most problematic of all the restraints in the section 20 to date," Mr. …

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