FED BOOSTS BANKS' POWER TO UNDERWRITE SECURITIES.

Byline: Daily News Staff and Wire Services

Banks can earn more from stock and bond underwriting under a new rule adopted Friday by the Federal Reserve Board, a move some analysts believe may launch a new round of mergers between smaller banks and regional brokerage firms.

By a unanimous vote, the Fed agreed to let bank holding companies earn up to 25 percent of their revenue from securities underwriting, up from the current 10 percent limit. The expansion comes after Congress failed again this year to pass a bank modernization bill.

``We hope the next move would be up to Congress to review this whole area,'' said Alice Rivlin, the Fed's vice chairwoman. The new rules will become effective in 60 days.

Larry LaRocco, managing director of the ABA Securities Association, said the Fed ``has begun chipping away at the antiquated barriers handicapping banks for years.''

``This is a tremendous boost for banks and an incentive for banks considering this business,'' said LaRocco, whose group is affiliated with the American Bankers Association.

The Fed's staff said the expansion wouldn't threaten the safety or soundness of the banking system and that it would result in greater competition, convenience and efficiency for bank customers. Out of 42 public comments, the Fed said it received eight letters opposing the rule.

Directly affected by the Fed's move will be 38 bank holding companies that were permitted to deal in stocks and bonds through separate affiliates insulated from the bank.

The California banks are BankAmerica Corp., Dai-Ichi Kangyo Bank Ltd. and Sanwa Bank Ltd.

Even with the 10 percent limit, banks have done quite well in the underwriting business. According to Investment Dealers' Digest, J.P. Morgan ranked sixth among all underwriters for domestic securities in the third quarter, handling deals worth $47.9 billion. NationsBank ranked 11th with $16.8 billion and Chase Manhattan, 12th, with $12.6 billion.