Revenues for the securities unit rose 7 percent, to $2.7 billion, largely because of an 11 percent rise in retail commissions and increased underwriting activities.

He also pointed to Alex. Brown's underwriting activities, which lifted its investment banking revenues 49 percent last year.

And the firm did an even better job of making money from its underwriting activity.

At Morgan Stanley, a volatile trading environment helped offset a decline in investment banking and underwriting activity.

The Fed said it would review the underwriting activities after a year and consider whether to raise the permissible limits to as high as 10 percent.

Conflict: Because the bank is affiliated with the securities firm it has an interest in the success of the underwriting activity.

Most of that expansion will be in Europe, despite the disappointing drop in underwriting activity and mergers there so far this year, he said.

Mr. Patrick said that after a very slow fourth quarter, underwriting activity was poised for what could be a strong rebound.

Investment banking revenue rose 66 percent over last year's first quarter to $64.7 million, attributed mainly to higher advisory fees and increased underwriting activity.

Not surprisingly, the steep drop in underwriting activity has had a negative impact on Wall Street's bottom line.