NEW YORK, FEB. 29 -- A federal appeals court agreed today to delay a ruling that would have given some banks limited investment banking powers, providing the securities industry with a last-minute boost in its effort to keep banks off its turf.
The one-page stay by the 2nd U.S. Circuit Court of Appeals in New York came a day before "M-Day," the scheduled expiration of a seven-month moratorium on new bank powers passed by Congress last summer.
Although the moratorium technically would be lifted Tuesday since Congress failed to reinstate it, the court's decision temporarily prevents banks from engaging in activities long considered the exclusive province of investment bankers, experts said after analyzing the ruling.
"The matter is moot," said Gary Brooten, a spokesman for Philadelphia National Corp., one of several bank holding companies eager to branch out.
The Federal Reserve had given 11 big bank holding companies permission under certain conditions to set up subsidiaries to underwrite mortgage-backed securities, municipal revenue bonds or commercial paper.
On Feb. 8, the federal appeals court in New York denied a request by the Securities Industry Association to review the Fed's decision, but today it agreed to delay for 15 days the issuance of its official "mandate."
The SIA says the stay would give it enough time to file an appeal with the Supreme Court. Some banking experts said the stay could be extended until the high court acts on that appeal.
The SIA, which represents securities brokers, dealers and underwriters, maintains that the Fed's ruling violates the Depression-era Glass-Steagall Act, which separated commercial and investment banking.
"We find this distressing," John Morris, a spokesman for J.P. Morgan & Co., said of the court's decision. "We've been prepared for some time" to underwrite securities.
"All the major money center banks are poised and ready to go," added Fraser Seitel, a spokesman for Chase Manhattan Corp.
When Congress enacted the moratorium in August, the idea was to give lawmakers time to pass comprehensive restructuring legislation. At least six financial restructuring bills have been introduced in the House and three in the Senate since the summer, but all are still in committee.
According to the American Bankers Association, the banking industry's trade group, 11 banks were given Fed approval for limited securities underwritings when the moratorium was issued.
At least three others have applied to the Fed, the association said.
The group said it was disappointed by the appeals court decision but it felt "confident that our situation will be vindicated in the judicial process."
Raymond Van Houtte, president of the New York State Bankers Association, which represents most of the nation's biggest banks, said banks need to branch out into the securities business to remain competitive.
"It would allow the banks to be a one-stop financial services office," he said.
"Banks have been under extreme pressure from the so-called nonbanks ... which are taking our markets away from us."
Van Houtte noted, for instance, how auto makers have become major issuers of car loans, once the main domain of banks.