GAO urges curbs on 'tying'

In a report commissioned by Congressman John Dingell, who has repeatedly called for regulators to clamp down on banks that infringe anti-tying laws, the GAO says that it was unable to find documentary evidence to substantiate the charges, partly because the large majority of credit negotiations are conducted orally. But according to the GAO, more in-depth investigations should be conducted in future.

House Financial Services Committee chairman Michael Oxley, says: “The GAO found little evidence of widespread tying practices at commercial banks with their investment banking affiliates, but the study underscores the importance of continued vigilance.”

According to the GAO report, regulators have so far focused their enquiries on interviews with the banks and transaction-specific reviews, and have failed to include more broad-based transaction testing and interviews with corporate borrowers.

The GAO recommends that “banking regulators may have to obtain other forms of indirect evidence to assess whether banks unlawfully tie products and services.”

The report also shows that many corporate borrowers are confused by the anti-tying regulations, and that banks’ interpretations of the law and its exceptions can occasionally contain substantial variations. And although the Federal Reserve recently issued a new draft interpretation for public comment, the GAO has suggested that additional guidance on the laws is needed.

Congressman Dingell, the report’s sponsor, agrees. In a letter to the Fed’s Alan Greenspan, he wrote: “The interpretation is overly complex...and I continue to see many pitfalls for the wary and unwary alike…The tone of the document appears to be tilted toward a ‘wink and nod’ approach to non-compliance.”US Credit

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