The most prominent of these is a proposal to further increase, from 10 to 25 percent, the proportion of total revenue that a Section 20 subsidiary may derive from underwriting and dealing in corporate dept and equity securities. This, together with other more technical changes, will increase the competitiveness of these entities and enable a broader range of banks to form Section 20 subsidiaries. The Fed also stated that it would no longer follow some burdensome regulatory policies, such as applying to bank holding companies the anti-tying rules the statute law applies on to banks, or seeking to enforce its supervisory policies through rulings in the unrelated process by which bank holding companies apply for new activities. These are important reforms. But both agencies are moving closer to the limits of their statutory authority.
More liberalization is necessary for a fully competitive financial system.
The next steps must be taken by Congress. The Comptroller's new rules are particularly significant, because they are not burdened by the misplaced idea that all nonfinancial activities must be forbidden to banks. If the Comptroller follows through by allowing national bank subsidiaries to engage in a variety of nonfinancial activities that are incidental to the business of banking, national banks will have the freedom to compete in many more sectors of the economy. If the Comptroller authorizes activities for bank subsidiaries which the Fed does not authorize for bank holding companies, however, competitive inequities may emerge. National banks may be permitted to enter new areas of activity in the economy while other firms engage in these same activities are prohibited, by the Fed's construction of the Bank Holding company Act, from acquiring or chartering a bank.