Fed Proposes More Powers for Banks

The Federal Reserve Board took another step toward making it easier and more profitable for banks to underwrite securities by proposing to let bank holding companies offer credit guarantees to customers of their securities affiliates. Large banks such as J.P. Morgan, BankAmerica, Fleet Financial Group and Chase Manhattan welcomed the initiative, which also would eliminate most of the remaining restrictions that complicate banking companies’ management of their securities affiliates. The changes improve the chances that bank securities subsidiaries, known as Section 20 companies, can match or beat the underwriting terms offered business customers by traditional investment banks such as Goldman Sachs. The action is a follow-up to the more dramatic step taken by the Fed in December that more than doubled the revenue banks can earn from underwriting securities.