May 7, 1990
TO: FEDERAL LEGISLATION MEMBERS NO. 6-90
FEDERAL LEGISLATION COMMITTEE NO. 4-90
RE: INSTITUTE TESTIMONY ON FINANCIAL SERVICES
INDUSTRY MODERNIZATION
__________________________________________________________
In testimony before the Senate Banking Committee, the
Institute endorsed the need for legislation to restructure the
financial services industry. The testimony reflected the
resolution adopted by the Institute's Board of Governors in
January which favored a new legislative approach in this area.
The Institute endorsed an affirmative legislative proposal
for two reasons.
The first is a recognition that new technologies and
innovations have increasingly blurred traditional distinctions
between banking and securities. Not only does this lead to the
conclusion that both banks and securities firms should, with
proper safeguards, be allowed to compete directly with each other
in all aspects of the financial services industry, it also
requires that our regulatory structure be realigned in order to
provide for effective functional regulation.
Second, in the face of ad hoc administrative deregulation,
it is necessary that comprehensive reform--encompassing deposit
insurance, consumer protection and competitive fairness--be
undertaken by the Congress.
The Institute endorsed an approach which combines a broad
view of permissible activities with strict standards for the use
of federally insured deposits.
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The four principles embodied in the proposal are:
1. the need for competitive fairness or, in other words,
a "two-way street";
2. the protection of the federal deposit insurance system;
3. corresponding changes to the regulatory structure that
will oversee any new system; and
4. Finally, firewalls which protect bank-affiliated mutual
funds and their shareholders from conflicts of interest and
other possible abuses arising from bank sponsorship of
mutual funds.
The testimony is attached. We will keep you informed as
this matter progresses.
Julie Domenick
Vice President-Legislative Affairs
Attachment