“Big investment banks and brokerage firms have done plenty of complaining about new regulations that are intended to reduce the influence their investment bankers have over their stock analysts. But the firms know that the proposed rules, which could be approved today, are the least of their problems,” writes Patrick McGeehan in today’s New York Times.

“Wall Street research has come in for harsh criticism about its objectivity from investors, members of Congress and law enforcement officials. Plaintiffs’ lawyers are lining up to sue big banks and their well-known analysts for having recommended stocks that crashed after the boom of the 1990’s.”

“So it is not surprising that securities regulators seem to be rushing to lay down new laws to address these concerns. The rules that the Securities and Exchange Commission is scheduled to consider at a meeting today in Washington should improve disclosure of potential conflicts and may help to limit the interaction and financial ties among analysts, bankers and their corporate clients.”

“But in the end, the rules would reinforce the standard structure that tries to serve two sets of clients whose interests often conflict. Executives of several big firms said that they could not afford to sever completely the link between the bankers who seek fees from corporations and the analysts who evaluate their stocks.”

“As long as they can preserve that model, they will probably be willing to accept — though not without a fight — most of the restrictions thrust on them by federal and state regulators. That struggle is playing out in Lower Manhattan between officials of Merrill Lynch and the New York attorney general, Eliot L. Spitzer.”

“Merrill is willing to build a bigger buffer between analysts and bankers and to make more use of the word ‘sell,’ but its executives have balked at prohibiting analysts from making pitches to prospective corporate clients or helping bankers sell stocks to institutional investors. The reluctance of Merrill, while it is under intense pressure to put an end to Mr. Spitzer’s investigation of the firm’s analysts, shows how much its investment bank relies on the cooperation of its analysts.”

“Merrill’s competitors are even more defensive — for now. But the S.E.C. has begun its own industrywide investigation into analysts’ conflicts of interest, and that effort may lead to more rules and even punishment of some firms and employees, said Annette Nazareth, the commission’s director of market regulation.”