Magazine article American Banker

Eurobond Study Leads Scholar to Suggest Banks Be Allowed in Securities Arena

Magazine article American Banker

Eurobond Study Leads Scholar to Suggest Banks Be Allowed in Securities Arena

Article excerpt

BOSTON -- Abolish the restrictions preventing U.S. commercial banks from entering fully the securities business, including underwriting of corporate bonds.

That's the advice of Richard M. Levich, an economist with New York University's Graduate School of Business Administration.

Mr. Levich comes to that opinion after examining the performance and development of the largely unregulated Eurobond market over the past 20 years. Affiliates of U.S. commercial banks are active in this market, competing primarily with both European and Japanese financial houses.

In a new working paper of the National Bureau of Economic Research, he finds "very favorable results" from the free competition in the Eurobond market. New Eurobond issues surpassed $50 billion in 1982.

"Existing U.S. regulation seems capable of dealing with known abuses and points of concern about the linkage of commercial and investment banking activities," he maintains.

At present, the Glass-Steagall Act prevents commercial banks from entering the underwriting business -- that is, buying a new issue of bonds from a corporation for immediate resale to institutions and individuals.

In passing that act during the Great Depression, Congress was concerned with potential conflicts of interest and increased risk to financial stability arising from the relations between banks and corporations, banks and their trust operations, and banks and their depositors that might arise from commercial banks acting in a dual role as underwriters. …

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