Bank Powers:

Activities of Securities Subsidiaries of Bank Holding Companies

GGD-90-48: Published: Mar 14, 1990. Publicly Released: Mar 20, 1990.

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Pursuant to a congressional request, GAO assessed so-called section 20 securities subsidiaries of bank holding companies.

GAO found that: (1) in the third quarter of 1989, 13 section 20 firms underwrote about $69 billion in bank-ineligible securities, a 90-percent increase over the second quarter; (2) in the second quarter of 1989, section 20 firms accounted for about 7 percent of all revenue realized by registered securities firms; (3) as of June 30, 1989, section 20 firms accounted for about 4 percent of total securities industry capital; and (4) 6 of the top 50 U.S. securities firms were section 20 firms. GAO also found that: (1) section 20 firms did not adversely affect bank and holding companies' financial conditions; (2) it could not yet evaluate related marketing issues and regulatory systems; (3) bank holding company officials felt that section 20 subsidiaries and regulatory requirements were costly and unnecessary, while securities industry officials believed that they ensured fair competition and prevented misuse of federally insured deposits; (4) the Federal Reserve Board required controls on underwriting and dealing in bank-ineligible securities; and (5) many aspects of section 20 regulations were unclear.

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