Fed's plan for subsidiaries criticized

Northwestern Financial Review, Oct 18, 1997

The Federal Reserve's proposal to apply regulators. Sections 23a restricts band 23b of investments in Federal Reserve Act to bank subsidiaries has received criticism from bankers and regulators. Section 23a restricts bank investments in subsidiaries to 20 percent of the parent company's capital, and restricts any single unit from getting more than 10 percent of capital.

Section 23b requires deals to be worked out from a distance so that the parent company can't provide special benefits to its subsidiary, like discounted loans. Industry representatives said the proposal was too broad and unnecessary. "No evidence exists that these measures of other regulators have been evaded or that risks to individual institutions or the banking system have increased from transactions covered by the board's proposal,'' reads a joint letter from the American Bankers Association, the Consumer Bankers Association and the Bankers Roundtable.