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December 12, 1989
TO: BOARD OF GOVERNORS NO. 74-89
RE: SIA PROPOSAL ON GLASS-STEAGALL
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The Securities Industry Association has proposed a
legislative plan that would amend the Glass-Steagall Act by
permitting banking organizations to engage in securities-related
activities, subject to certain limitations. The proposal would
also permit securities firms to engage in consumer banking and
grant them access to the Federal Reserve payments system and
discount window.
Attached is a copy of the SIA's press release on its
proposal. Among the most important elements of the proposal are
the following:
-- A bank holding company could own a separately
capitalized "investment banking finance company" or "IBFC", which
could engage in a full range of securities activities. The
entity would be regulated by the SEC.
-- Firewalls would be required between the IBFC and any
federally insured depository institution owned by the bank
holding company. For example, an insured bank could not
participate in the same transaction or set of transactions with
the IBFC. (We understand that this would mean that all
commercial lending to a company that is a client of the IBFC
would have to be done through the IBFC, and not the insured
depository institution.)
-- A securities firm could also establish an IBFC. Broker-
dealers affiliated with an IBFC could participate directly in the
large dollar payment system and the federal funds market. In
addition, they could borrow directly from the Federal Reserve
discount window during liquidity crises.
-- A federally insured bank could own a retail brokerage
subsidiary, which also would be subject to firewalls between it
and the IBFC.
-- Registered broker-dealers could establish federally
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insured consumer banks.
Although the SIA proposal, at least in part, contemplates a
"two-way street", it does not address other issues that the
Institute has stressed in the past, such as amendments to the
Investment Company Act to regulate bank mutual fund activities
and the closing of the common trust fund loophole.
The January Board of Governors meeting will discuss the SIA
proposal and other recent proposals to amend the Glass-Steagall
Act and will consider the positions to be taken by the Institute.
Matthew P. Fink
Senior Vice President &
General Counsel
Attachment