Bank Investments
Bank investments contribute to the overall credit function, but occupy a lower priority in the management of funds than loans. As a group, commercial banks are the largest holders of U.S. government obligations. Banks also have made substantial investments in the debt issues of state and local governments, authorities, and agencies; however, the Tax Reform Act of 1986 has made municipal issues less attractive to banks. The total portfolio of a commercial bank usually consists of both a trading account, in which an inventory of securities is held for resale to customers, and a larger investment account, in which the bank may place its own funds (within legal limits).
Bank opportunities to underwrite and invest in various securities are restricted by federal laws. In additions, the banks themselves have been careful to protect their liquidity, safety, and income by diversifying their holdings and by spacing the maturities of the issues hold.
In recent years, many banks have been granted regulatory approval to engage in a wider range of securities-related activities in order to provide more complete services to their customers.
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http://theitasset.wordpress.com/2012/07/08/the-evolution-of-u-s-banking/