Fed Imposes Tougher Rules On Some Banks --- Limited-Service Firms Face Curbs on Check Cashing And Other Operations
NEW YORK -- The Federal Reserve Board has imposed further tough restrictions on the operations of limited-service banks, a move that some bankers say will make these new banks unattractive to set up.</br></br>The restrictions, which are set out in a letter to Suburban Bancorp, Bethesda, Md., go beyond those publicly announced by the Fed, some bankers say. They prohibit a bank holding company from providing most banking services, such as check clearing, data processing and check cashing, for a limited-service banking office.</br></br>The new limitations also put the Fed increasingly at odds with the Comptroller of the Currency, which already has approved applications for dozens of limited service banks.</br></br>Limited-service banks, because they either don't make commercial loans or don't take demand deposits, fall outside the legal definition of a bank. Creation of large numbers of limited-service banks around the country would transform the banking industry, since they provide a way around the prohibition on interstate banking and bank ownership by non-banking businesses.</br></br>The latest restrictions strike most noticeably at bank holding companies, which are eager to set up limited-service banking operations beyond their home states. But Fed officials have made it clear that their real goal is to keep non-banking giants, such as Merrill Lynch & Co. and Sears, Roebuck & Co., out of the banking business.