U.S. Reviewing Banking Conflicts; Regulators Focus on Tying of Loans to More Profitable Services
Federal regulators have launched a major review of the nation's top banks to ensure compliance with rules barring firms from linking the price or availability of loans to a corporate client's use of the bank to underwrite its stock or bond offerings.</br></br>Companies covered by the review include Bank of America Corp., Citigroup Inc., JP Morgan Chase & Co., Bank One Corp. and Wachovia Corp. Each owns a commercial bank that makes traditional business loans and an investment bank that provides securities services such as selling stocks and bonds to the public.</br></br>The government's interest in the tying of loans to securities underwriting stems from fears among regulators and legislators that bankers are being pressured to weaken their lending standards to win other, more profitable business from commercial clients. Regulators worry that weaker loans could imperil the overall health of the banking industry, whose deposits are insured by an industry-funded reserve run and backed by the federal government.</br></br>The review coincides with broader scrutiny of financial conglomerates and their tying of services, such as issuing favorable analyst reports to help win stock and bond business.</br></br>The review by banking regulators was detailed in a Aug. 3 letter, made public yesterday, from Federal Reserve Board Chairman Alan Greenspan and Comptroller of the Currency John D. Hawke Jr. -- the nation's two top banking regulators -- to Rep. John D. Dingell (D- Mich.), the ranking Democrat on the House Energy and Commerce Committee.