Securities and Investment Advisory Activities of Banks

A number of recent significant judicial, legislative, and regulatory developments regarding securities and investment activities of banks are examined. Statutory provisions most directly relevant to the securities and investment activities of banks include the Glass-Steagall Act of 1933 (GSA) and Section 4 of the Bank Holding Company Act of 1956 (BHCA). During 1989, the courts considered, and upheld, the ability of a national bank to underwrite undivided interests in pools of mortgages originated by the bank. In 1987, the Federal Reserve Board (FRB) approved Section 20 applications permitting bank holding companies to establish nonbank subsidiaries to underwrite and deal in certain types of municipal revenue bonds, mortgage-related securities, and commercial paper. In 1989, the FRB approved the applications of several bank holding companies seeking to expand their securities powers, but the FRB directed that the applicants could engage in underwriting and dealing activities only after a one-year review to determine whether the applicant has established the managerial and operational infrastructure required under FRB approval.