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1 (April 27, 2005)

handle is hein.crs/crsaiix0001 and id is 1 raw text is: Order Code RS21680 Updated April 27, 2005 CRS Report for Congress Received through the CRS Web Affiliates in Banking, Finance, and Commerce: Development and Regulatory Background William D. Jackson Specialist in Financial Institutions Government and Finance Division Summary The proliferation of corporate affiliates in banking, finance, and commerce has figured in discussion of several policy issues, including how to protect against (1) losses incurred by affiliated companies; (2) anticompetitive tying of bank and nonbank financial services; and (3) misuse of financial data of consumers. The Gramm-Leach- Bliley Act in 1999 greatly increased affiliations. Sharing of consumer financial information among affiliates, one issue in reauthorization of the Fair Credit Reporting Act, requires considerable attention to affiliations. Proposed Community Reinvestment Act regulations involve affiliates of banks. Comptroller of the Currency efforts to bring subsidiaries of national banks under federal banking law, preempting than state laws, also involve affiliations. This report outlines the nature and evolution of affiliates, primarily from a regulatory perspective. It provides background for discussing financial issues involving corporate affiliates and will be updated as events warrant. Background and Analysis Conducting nonbanking activities directly within a bank has generally been viewed as a threat to the integrity of the bank. Periodically in American financial history, and in other nations today, bank diversification into nonbanking financial and commercial business has emerged.! Safety problems often followed because of a tendency for entrepreneurs to combine captive sources of (bank) funds with their own (commercial) uses of funds, without regard for normal due diligence. By forcing nonbanking activities into a separately capitalized, separately run company associated with a bank, policymakers sought to lessen the risks that self-funding may pose to banks, to deposit 1 Joseph G. Haubrich and Joao A. C. Santos, Alternative Forms of Mixing Banking with Commerce: Evidence from American History, Financial Markets, Institutions & Instruments, vol. 12, no. 2, pp. 121-164. Congressional Research Service 4- The Library of Congress

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