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. Last Updated: 07/27/2016

U.S. Banks Freed to Sell Insurance, Stocks

WASHINGTON -- The U.S. Office of the Comptroller of the Currency has issued a package of rules that would allow national banks to apply for expanded powers to underwrite and sell both securities and insurance, as well as market financial products not yet tested by banks.

The announcement last week was immediately praised by bankers, who have long lobbied for the freedom to sell a larger variety of financial products. Representatives of the insurance and securities industries decried the move, however, charging that the OCC is circumventing congressional action on banking reform promised for next year.

"This tilts the marketplace in favor of banks, undermining competition within the financial services industry," said Steve Judge, senior vice president of government affairs for the Securities Industry Association.

"The concern we have now is that the OCC's action may undermine a broad-based financial services coalition, which is working with Congress to enact much-needed reforms," Judge said.

Congress has tried often in recent years to reform the Glass-Steagall Act, a Depression-era law aimed at restricting the securities activities of banks. But such attempts have stalled, and the regulators said they have decided that it is time to move ahead -- even if it means sidestepping Congress.

"The business of banking cannot stand still while this debate goes on," said Comptroller of the Currency Eugene Ludwig, who announced the rules in a speech before the Exchequer Club in Washington.

The OCC, which regulates 2,800 nationally chartered banks, said it will allow national banks to set up separately capitalized subsidiaries to market new products and services. The agency also said the application process will be streamlined, and that the subsidiaries must comply with the Community Reinvestment Act, a fair-lending law.

Ludwig stressed that the agency will be cautious. For example, he said, it will require that banks set up separate corporate identities for subsidiaries and limit the amount of capital banks may pump into them.

Though the OCC did not lay out specific rules, its action is among the most aggressive moves by regulators to pave the way for banks to offer expanded services. Consumer groups say they worry that allowing banks to expand into insurance and securities could jeopardize the safety of the institutions and, thus, the deposits they hold for consumers.

This is the latest action by banking regulators to move ahead with financial modernization. Last month, the Federal Reserve voted to knock down some of the walls that separate banks from securities affiliates, allowing the institutions more freedom to market and develop investment products.