The Federal Reserve's top lawyer has signaled that the central bank means to use the "complementary activities" authority it has under Gramm-Leach-Bliley in a way that will have major positive effects on the financial industry. Fed General Counsel Virgil Mattingly said in a Feb. 15 talk to bank lawyers that he wanted to stress that the Reserve Board would be so flexible in approving activities under this provision of law that it would enable securities and insurance firms to acquire banks and banks themselves to remain competitive in the race against non-bank institutions.
He pointed out the usefulness of an alternative way to do activities, GLBA's merchant banking authority, was limited by two restrictions, the bar to affiliate transactions in Sections 23A and 23B of the Federal Reserve Act, which GLBA applies to financial holding companies, and the prohibition against cross-marketing. The latter would prevent the offering or marketing of products of the portfolio company in a merchant banking relationship and vice versa.
The complementary language, Mattingly said, was broader, and would allow "a two-way street" for all financial institutions. He said he thought the reason the New York Clearing House Association last year made its finders request for new computer activities via the complentary activities provisions rather than under the merchant banking rule was the cross-marketing ban in the latter.
Bank lawyers interviewed later about Mattingly's comments noted that the finders approval was the only one the Fed has done under the complementary language in the year and a half since GLBA was enacted into law. A call to a Fed spokesman was not returned by press time.