Ruling Clears Way for Bank Brokerage Outlets

By James H. Rubin, | THE JOURNAL RECORD, January 15, 1987 | Go to article overview

Ruling Clears Way for Bank Brokerage Outlets


James H. Rubin,, THE JOURNAL RECORD


WASHINGTON - The Supreme Court, ruling in a big-stakes battle, Wednesday cleared the way for national banks to establish discount securities brokerage outlets wherever they want.

The 8-0 decision, a victory for the Reagan administration as well as the banks, overturned a federal appeals court ruling that limited bank expansion into the business of selling stocks and bonds.

Justice Byron R. White, writing for the court, said the U.S. Comptroller of the Currency may approve plans by national banks to offer customers widespread brokerage services.

A federal law that limits branch banking activities, the 1927 McFadden Act, does not apply to establishing a securities business because that is not a "core banking function," White said.

"The comptroller reasonably interprets the statute as requiring competitive equality only in core banking functions, and not in all incidental services in which national banks are authorized to engage," White said. "A discount brokerage service is not a core banking function."

The comptroller in 1982 approved plans by two national banks - Security Pacific Corp, with offices in California and elsewhere in the West, and Union Planters National Bank of Memphis, Tenn. - to enter the discount brokerage business.

The Supreme Court refused last year to hear a securities industry challenge to the comptroller's decision.

But the securities industry succeeded in preventing unlimited bank expansion into the securities business when the U.S. Circuit Court of Appeals ruled in its favor in 1985.

The appeals court said national banks may conduct brokerage activities only at established bank branch offices. The decision, until Wednesday, effectively prohibited banks from crossing state lines to set up new brokerage outlets or from creating new offices for selling securities within the bank's home state. …

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