The Supreme Court yesterday allowed the federal government to permit broad expansion of national banks into the discount securities brokerage business.
The court rejected without comment an appeal by a securities dealers' trade group, which said that permitting banks to open discount brokerages could allow more than 2,000 banks to enter the business.
The action upheld two 1982 decisions by then-Comptroller of the Currency C. T. Conover. Conover gave permission to Security Pacific Corp., a California-based bank holding company, to establish its own discount brokerage service and allowed Union Planters National Bank of Memphis to purchase a local brokerage firm.
Last year, the court upheld the Federal Reserve Board's decision to allow an affiliate of BankAmerica Corp. to purchase Charles Schwab & Co., the nation's largest discount brokerage.
Many banks are attempting to diversify their range of financial products by offering services such as discount brokerages, which offer investors cut-rate trading charges but no investment advice.
The Securities Industry Association, representing more than 500 securities brokers, dealers and underwriters, had contended that such expansions could be permitted only if Congress changed a 1933 law limiting banking activities.
Under the Glass-Steagall Act, banks cannot offer investment advice or analysis like stockbrokers, but can merely purchase and sell stocks and bonds for their customers.
The association argued that Congress, in passing the law, only intended for banks to handle securities transactions for existing customers -- not offer a general service.
"Over the last several terms, Congress has enacted major reforms to the federal banking laws, but has repeatedly declined to modify existing restrictions on bank securities activities," the group said in a legal brief.
The U.S. Circuit Court of Appeals here upheld a lower court ruling permitting the expansion last April.