Magazine article American Banker

Comptroller Endorses Bankers Trust Dealings in Commercial Paper

Magazine article American Banker

Comptroller Endorses Bankers Trust Dealings in Commercial Paper

Article excerpt

WASHINGTON -- The U.S. Comptroller of the Currency has formally endorsed Bankers Trust Co.'s dealing in commercial paper.

In a comment letter to the Federal Reserve Board, Comptroller C.T. Conover said that although Bankers Trust is a state-chartered bank under the Fed's jurisdiction, resolving the dispute over the legality of the bank's activities "could have a significant impact upon the operations of national banks."

Federally chartered banks under the Comptroller's authority, such as Bank of America and Citibank, have become participants in the commercial paper market in recent years. But Mr. Conover's letter is believed to be the first public statement of approval of such activities.

Last June, the Supreme Court decided that commercial paper is a security, but it did not say whether Bankers Trust's dealing in it constitutes "underwriting," which would be illegal under the Glass-Steagall Act of 1933.

In October, the U.S. District Court for the District of Columbia ordered the Fed to decide whether Bankers Trust's dealership of commercial paper should be considered underwriting, and the Fed has asked for comment from interested parties.

Mr. Conover told the Fed that "there is no indication that the Glass-Steagall Act sought to prohibit in any fashion the financial advisory or private financing activities which commercial banks have routinely provided."

Bankers Trust's dealings are private placements and not public offerings, which are made through underwritings, he said. Since 1977, the Fed and the Comptroller have permitted banks to offer the entire range of securities -- including those otherwise ineligible for bank underwriting -- through private placements.

"Access to Bankers Trust's service is limited to a limited number of institutional buyers and sellers, each of which is fully capable of making its own independent investment judgments concerning the advisability of purchasing or selling commercial paper," Mr. …

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