WALL STREET BANK ACCESS MAY WIDEN : PROPOSALS EASE LIMITS IN SECURITIES BUSINESS.

Byline: Richard W. Stevenson The New York Times

The Federal Reserve took a step Wednesday to loosen the Depression-era law that limits banks from competing in the securities business, proposing new regulations that would allow some of the largest banking companies to expand greatly the business they conduct on Wall Street.

The proposals represent a clear if limited victory for many of the nation's largest banking companies, including J.P. Morgan, Chase Manhattan, Citicorp, Bank of America and Nationsbank.

The most important change would allow the securities subsidiaries of bank holding companies to generate as much as 25 percent of their revenue from underwriting and dealing stocks and many types of bonds, up from a limit of 10 percent.

The Fed also proposed ending or scaling back some of the ``firewalls'' it had required banking companies to establish between banking and securities operations. Among the biggest changes would be easing the restrictions on sharing employees and directors and ending the ban on banks helping to market the activities of the securities subsidiary.

Banking industry executives said they expected the proposals to be adopted. The Fed requested comments from the affected industries on the revenue proposal by Sept. 30 and on the other proposals by Sept. 3. The Fed was expected to make final decisions within a matter of months.

Banks had been pushing for the rules to be eased as part of legislative changes to the Glass-Steagall Act of 1933, which divided up the financial industry to shield federally insured banks from what was seen as the riskier ethos of Wall Street. But the attempt to remove the barriers in Congress broke down this spring amid feuding within the financial services industry.

Since then, banks, supported by the chairman of the House Banking Committee, Rep. Jim Leach, R-Iowa, have been pressing the Fed to use its power over bank holding companies to accomplish some of the same ends.

The Fed has allowed bank holding companies to establish so-called section-20 securities subsidiaries for the past nine years, and there are currently 39 American and foreign banks that have done so. The subsidiaries are permitted to underwrite and deal in securities that banks are otherwise barred from. Banks are permitted to trade some securities, like U.S. government bonds.

``We are in total sync with the Fed on where banks need flexibility in their operations, so we commend the Fed for proposing that flexibility and doing it in such timely fashion,'' said Larry LaRocco, the managing director of the ABA Securities Association, an affiliate of the American Bankers Association, which represents the 20 big American banks with large securities operations.

``It means that some of the banks that are bumping up against the revenue limits can move forward with their underwriting activities, and it means they will no longer be hamstrung by regulations on cross-marketing and sharing employees,'' LaRocco said.

Bank executives said, however, that the Fed proposals should not slow efforts to overhaul or repeal Glass-Steagall.

``While we fully support this modest step, we think the time is long overdue for the full dismantling of the artificial constraints of the Glass-Steagall Act that are relics of markets and thinking more than 60 years old,'' said Alan S. MacDonald, Citibank's executive vice president and global head of corporate finance.

But the Securities Industry Association, which represents Wall Street firms, said that the Fed's action could undercut efforts to forge a consensus on repeal of the Glass-Steagall Act by giving big banks much of what they want.

The association said the Fed should grant only temporary relief to section-20 subsidiaries that are reaching the regulatory limits on the amount of business they can do as a way of spurring banking companies to negotiate a legislative solution.