Fed's Bies: Bank product-tying rules need clarity

Fri Nov 5, 2004 12:49

BOCA RATON, Fla, Nov 5 (Reuters) - More clarity is needed for banks to be able to distinguish what practices would violate federal prohibitions on illegally making one product available only upon purchase of another, Federal Reserve governor Susan Bies said Friday.

"Ensuring compliance can be an extremely difficult endeavor because there is no prohibition against cross selling products or aggressive marketing," Bies said in prepared remarks to be delivered to the annual meeting of the Securities Industry Association.

"The goal is to ensure that banks don't cross the line between offering choices and illegally tying products and services," she said in a text of her comments, which was also released in Washington.

Her remarks offered nothing on the economy or the monetary outlook.

In August 2003, the Fed reached a settlement with German bank WestLB AG and its New York branch, under which the Dusseldorf-based bank agreed to pay a $3 million civil penalty. The bank neither admitted nor denied allegations it made the price or availability of credit to corporate customers dependent on it also being hired as an underwriter for securities, a violation of "anti-tying" rules.

At about the same time, the U.S. central bank proposed supervisory guidance for banks on the issue. Bies said it was published - thought not finalized yet - to help clarify permissible practices.

"Our supervisory reviews indicate that banks generally understand and have implemented systems to ensure compliance with the anti-tying provisions to which they are subject," Bies said.

Some tying between banks and their non-bank affiliates is permitted and arrangements that only involve "traditional" bank products are not prohibited.

Bies noted the Justice Department had weighed in on the proposal and suggested it could harm consumers.

In its Nov. 7, 2003, letter to the Fed, Justice lawyers worried that the Fed proposal could chill competition and keep banks from offering bundles of products that consumers voluntarily agree to buy.

"This restriction may negate or minimize the benefits customers gain from multi-product discounts," according to the Justice letter.

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