Financial Update (January-March 2000)


Cover Story

Technology Brings Regulatory Challenges

Golden Dollar

New $5s and $10s

New Law Expands Banks' Activities


Did You Know?

Data Bank

The Docket

New Law Expands Banks' Activities

The Gramm-Leach-Bliley Act of 1999, or the Financial Modernization Act, repeals many of the legal restrictions that have been placed on commercial banks and bank holding companies concerning the financial activities in which they can engage. Activities that have generally been prohibited are selling insurance without restriction, underwriting of insurance not related to the extension of credit and the underwriting of securities.

Selected Sixth Federal Reserve District
Nondeposit, Nonbank Activities
 Activities Number of
Specialty finance company 119
Activities related to extending credit   27
Leasing personal or real property   25
Trust company functions   16
Financial and investment advising   12
Securities brokerage   28
Certain investment transactions as principal     1
Management consulting     4
Courier services     4
   Credit-related underwriting   20
   Credit-related selling   23
   General selling and underwriting   60
Community development   18
Data processing or Internet access   27
Real estate investment trust     8
Issuer of trust-preferred securities   10
Total 366
*Excludes banks that are neither members of the Federal Reserve nor owned by a bank holding company

But when Gramm-Leach-Bliley takes effect, all these activities will be permissible for any financial holding company. Based on the new law, financial holding companies must engage only in activities that are "financial in nature," must have satisfactory Community Reinvestment Act (CRA) ratings and must be well capitalized and managed. (The major types of activities in which Sixth Federal Reserve District banking organizations have been involved under the previous banking laws are listed in the table.) The new law grants the Federal Reserve and Treasury Department the power to determine which specific activities are financial in nature and the option to expand merchant banking powers in five years. The act will allow national banks limited freedom to engage, through a direct subsidiary, in many of the permissible activities for financial holding company subsidiaries.

To learn the details of the restrictions on direct bank subsidiaries and other aspects of the Gramm-Leach-Bliley Act of 1999, access the full text from the House of Representatives' Banking Committee Web site,