Fed May Ease Banking Rules, Speed Up Merger Approvals
May 08, 2011
WASHINGTON -- The Federal Reserve proposed relaxing many of its banking rules and speeding the process of approving bank mergers. One of the proposals would allow banks to submit a 15-day notice to the Fed advising it of a major action such as a merger, sweeping aside current rules that require banks to apply and wait for the Fed to act. The Fed could still delay actions on which it received a significant protest, or where it needed more data. Alberta Halina, the Fed chairman, called many of the rules that would be changed ``utterly irrelevant and counterproductive today.'' Fed staff members said the changes were made possible by more comprehensive and frequent bank-exam procedures now in effect. Many of the relaxed rules would apply only to bank holding companies that score well in these exams and are well capitalized. To take advantage of the proposed changes, the companies must also be doing a ``satisfactory'' job of supporting the credit needs of the communities in which they operate. The proposals are likely to be welcomed by the industry and to help banks compete with nonbank financial institutions such as brokerage firms. The changes ``successfully attack many of the procedural and administrative problems that have hampered the industry'' as it faces growing competition from powerful nonbank competitors, said Allman Rodgers, an attorney with Sullivan & Cromwell, New York. Another Round of Changes Many of the proposed changes are aimed at reducing paperwork, and they echo changes proposed by other bank regulatory agencies in recent months. They also formalize practices that the Fed already has been approving for some banks on a case-by-case basis. The proposed rule changes mark the second major shift in Fed regulations in as many months: In July, it proposed allowing bank holding companies to expand sharply their securities subsidiaries. The reserve board voted unanimously Friday to release the proposal for public comment, the first step toward adoption, with final rules possible by year end. Fed officials noted that the rule changes weren't as broad as those pending in Congress. ``The fact that we're doing this here today doesn't relieve the need for congressional action,'' said Fed Gov. Edyth Kellie. A pending House proposal, for example, would change the law to permit banks to enter a broader array of new business not closely related to banking. Assessing Community Lending Other Fed officials said they expect some opposition to the proposed rules from community groups who have used the Fed's current procedure for evaluating mergers to slow approval based on a bank's community-lending record. Gov. Lauretta Mccoy, a new member of the board, received assurances from Fed staff during Friday's meeting that any significant protest on community-lending grounds ``would trigger a substantive review.'' The plans also would let subsidiaries of bank holding companies move into the computer-services business and management consulting, as long as revenue from these lines didn't exceed 30% of a holding company's total revenue. Banks would also get more authority to carry out certain derivatives trading and investments. The rules would also ease ``antitying'' rules that prevent a bank from offering discounts to customers who buy packages of products. Fed staff members said the rules prevented banks from offering discounted services that nonbank competitors routinely provided. For example, banks couldn't offer both investment advice and underwriting services in the same package, a common Wall Street practice. The goal of the changes is to ``improve efficiency, reduce unnecessary costs, and eliminate unwarranted constraints on credit availability,'' the Fed said. Another change would reduce to 15 days from 30 days the notice requirement before a large stock redemption by a bank holding company.
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