The Federal Deposit Insurance Corp. yesterday proposed rules that would permit banks to enter the insurance, real estate, data processing, securities and travel agency businesses.
Real estate and insurance underwriting would have to be conducted in separately capitalized subsidiaries isolated from the parent bank. Real estate, insurance, travel services, data processing and securities brokerage businesses could be conducted within the bank.
The proposed rules are open for comment for 60 days, after which the bank regulatory agency can make them final, change them or decide not to put them into effect at all.
Last week, the agency ruled that the banks it regulates could underwrite corporate securities, provided they did so through separately capitalized subsidiaries.
The FDIC is requiring separate subsidiaries for underwriting activities because underwriting is a far riskier venture than brokering. An insurance underwriter, for example, collects premiums and pays claims. If claims exceed premiums or reserves, an insurance underwriter could go out of business. A broker, on the other hand, merely is a middleman between an underwriter and a customer and collects a commission from the underwriter.
The FDIC activity affects only the 9,000 or so of the nation's 14,700 banks that are regulated by the agency. These are state-chartered banks that are not members of the Federal Reserve system. Nationally chartered banks and state banks that are members of the Fed system are regulated separately.