Securities Activities of Banks in the GLB Era - Cleary Gottlieb Steen ...

(iv) A study on the tying of lending and equity
underwriting supports the notion that tying
arrangements may benefit both banks and equity issuer
customers, that tying lowers issuers’ (and especially
non-investment grade issuers’) financing costs through
lower underwriting fees and discounted loan yield
spreads, and that banks can realize cost savings from
efficiencies (e.g., informational economies of scale
attributable to using the same client-specific
information for multiple purposes) resulting from
combining lending and underwriting. The study also
indicates that both commercial and investment banks
tie lending and underwriting and offer price discounts
(although investment banks and commercial banks
appear to compete through different components of the
tied deal -- commercial banks are more likely to offer
discounted yield spreads on tied loans while
investment banks are more likely to discount the
underwriter spread). See Drucker & Puri, The Tying
of Lending and Equity Underwriting (April 2004). See
also Mullineaux, Tying and Subsidized Loans: A
Doubtful Problem (May 2003) (concluding that tying
is not a rational strategy and that no valid inferences
about tying can be drawn from simple comparisons of
rates on loans with those on bonds or credit default
swaps).
e. It is unclear when (or whether) the Proposed Anti-tying
Interpretation will be finalized.
5. The General Accounting Office (“GAO”) Report Bank Tying:
Additional Steps Needed to Ensure Effective Enforcement of Tying
Prohibitions (2003) (the “GAO Report”) concluded that the
application of the Anti-tying Statute depends on the facts and
circumstances of specific transactions, and that this has contributed to
widespread confusion about what is prohibited and what is permitted.
The GAO concluded that there was little evidence of bank violations
of the Statute, and that Board/OCC targeted examinations of the antitying
policies and procedures of several large commercial banks did
not uncover any significant problems.
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