Magazine article American Banker

Bankers Trust Tries Another Legal Road into Securities Business

Magazine article American Banker

Bankers Trust Tries Another Legal Road into Securities Business

Article excerpt

Bankers Trust Tries Another Legal Road into Securities Business

NEW YORK -- Bankers Trust New York Corp., whose commercial paper placement business is threatened with extinction in the courts, is trying another legal avenue to preserve its current securities business and expand into others.

Following innovative legal steps of two other big New York banks, Bankers Trust has asked the Federal Reserve Board for permission to underwrite and deal in commercial paper, municipal revenue bonds, mortgage-backed securities, and obligations tied to consumer receivableS.

In an application filed with the Fed last Friday, the nation's ninth largest banking company said it would conduct those largest banking company said it would conduct those business through a proposed subsidiary, BT Securities Corp., based in New York.

Federal banking laws prohibit commercial banks from conducting such securities activities, but Citicorp, J.P. Morgan & Co., and now Bankers Trust are hoping to exploit a legal loophole of sorts, to gain access to those lucrative markets.

Applications filed by the banks hinge on the Fed's interpretation of a two-word phase in Section 20 of the Glass-Steagall Act, which prohibits companies from mixing commercial banking and investment banking functions. Banking attorneys argue that the Depression-era law does allow a holding company subsidiary to conduct otherwise forbidden activities, provided that the unit is not "engaged principally" in those functions.

In early December, the Fed postponed a decision on Citicorp's application, which was viewed as an important test case for other big banks hoping to enter the underwriting business primarily owned by Wall Street's largest securities firms. A Fed spokeswoman on Thursday said the board had not yet rescheduled a meeting on the Citicorp plan, which was the first one of its kind filed with the Fed and has since been entered down to improve its changes of acceptance.

Like Citicorp and Morgan, Bankers Trust proposed to limit its "ineligible" activities so that they do not constitute the unit's principal business. Its application proposes that those activities will constitute no more than 15% of the unit's business during any two-year period, as measured by two of threee gauges: sales volume, average assets, and gross income.

Bankers Trust also promised to limit its proposed underwritings of municipal revenue bonds to 3% of the total amount of those securities underwritten in the market each year. …

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