February 6, 1991
TO: BOARD OF GOVERNORS NO. 10-91
RE: ADMINISTRATION PROPOSAL FOR MODERNIZING THE
FINANCIAL SYSTEM
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On February 5, 1991, the Administration released its
proposal to reform the deposit insurance system and restructure
the financial services industry. From a briefing given by
Treasury Secretary Brady and from the accompanying Treasury
document, it appears that the Administration’s proposal
incorporates many of the Institute’s suggestions. Specifically,
it appears that the Administration’s proposal:
- provides for a two-way competitive street, under which
all banks can affiliate with securities firms and all
securities firms can affiliate with banks
- provides for repeal of restrictions on interstate
banking, thus permitting securities firms which
affiliate with banks to offer securities and banking
products on a nationwide basis
- provides for bank-securities firm affiliations through
the holding company structure, under which banking
activities and securities activities would be
conducted by separate subsidiaries of holding
companies
- provides that securities activities (including the
sponsorship and underwriting of mutual funds)
conducted by these securities subsidiaries would be
subject to SEC regulation
- recognizes the need for firewalls between the bank and
its securities affiliate
Because legislative language is still being developed, two
issues of importance to the Institute remain unclear: whether
the legislation will contain specific firewall provisions
dealing with mutual funds sponsored and underwritten by bank
securities affiliates; and how the legislation will deal with the
regulation of bank common trust funds and collective investment
funds for retirement plans, although the Treasury document does
state that "Banks’ pooled investment activities would be
regulated in a manner more similar to investment companies". The
Institute plans to meet with Treasury officials to discuss these
matters.
Attached is the section of the Treasury’s paper dealing
with "Modernized Financial Services Regulation."
We will keep you advised of further developments.
Matthew P. Fink
Senior Vice President and
General Counsel
Attachment