CLE Materials for Panel #1 - George Washington University Law ...

WILMARTH
4/1/2011 1:11 PM
1036 OREGON LAW REVIEW [Vol. 89, 951
Section 4(c)(8) of the BHC Act. 370 For example, this first tier of
traditional banks could take deposits, make loans, offer fiduciary
services, and act as agents in selling securities, mutual funds, and
insurance products underwritten by non-affiliated firms.
Additionally, they could underwrite and deal solely in “bank-eligible”
securities that national banks are permitted to underwrite and deal in
directly. 371 First-tier banking organizations could also purchase, as
end users, derivatives transactions that (1) hedge against their own
firm-specific risks and (2) qualify for hedging treatment under
Financial Accounting Standard (FAS) Statement No. 133. 372
Most first-tier banking firms would probably be small and midsize
community-oriented banks, because those banks have shown little
interest in engaging in insurance underwriting, securities underwriting
or dealing, derivatives dealing or trading, or other capital markets
activities. Community banks are well positioned to continue their
traditional business of attracting core deposits, providing relationship
loans to consumers and to small and midsize businesses, and offering
wealth management and other fiduciary services to local
customers. 373 First-tier banks and their holding companies should
continue to operate under their current supervisory arrangements, and
all deposits of first-tier banks (up to the current statutory maximum of
$250,000 374 ) should be covered by deposit insurance.
In order to provide reasonable flexibility to first-tier banking
organizations, Congress should amend section 4(c)(8) of the BHC Act
by permitting the FRB to expand the list of “closely related” activities
that are permissible for holding company affiliates of traditional
banks. 375 However, Congress should prohibit first-tier BHCs from
370 See 12 U.S.C. § 1843(c)(8) (2006); CARNELL ET AL., supra note 118, at 442–44
(describing “closely related to banking” activities that are permissible for nonbank
subsidiaries of BHCs under § 4(c)(8)).
371 See Wilmarth, supra note 120, at 225, 225–26 n.30 (discussing “bank-eligible”
securities that national banks are authorized to underwrite or purchase or sell for their own
account); CARNELL ET AL., supra note 118, at 132–34 (same).
372 See Wilmarth, supra note 6, at 766.
373 For a discussion of the business strategies typically followed by community banks,
see Wilmarth, supra note 120, at 268–72.
374 Dodd-Frank Act § 335(a) (amending 12 U.S.C. § 1821(a)(1)(E) to increase
permanently the “standard maximum deposit insurance amount” to $250,000).
375 Unfortunately, the Gramm-Leach-Bliley Act (GLBA) of 1999 prohibits the FRB
from approving any new “closely related” activities for bank holding companies under
section 4(c)(8) of the BHC Act. See CARNELL ET AL., supra note 118, at 444 (explaining
that the GLBA does not permit the FRB to expand the list of permissible activities under
section 4(c)(8) beyond the activities that were approved as of November 11, 1999).