October 24, 1991
TO: BOARD OF GOVERNORS NO. 80-91
RE: ANTICIPATED HOUSE ACTION REGARDING GLASS-STEAGALL
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The two House Committees with primary jurisdiction over
Glass-Steagall legislation, the House Banking Committee and the
House Energy and Commerce Committee, have reached tentative
agreement over the contents of banking legislation to be
presented to the floor of the House. This makes it possible that
the House shortly will vote on legislation that grants bank
securities affiliates full securities powers, including the
authority to sponsor and underwrite mutual funds.
Background
As we previously informed you, the House Banking Committee
reported the Bush Administration's bill on financial services
reform last June. (See Memorandum to Board of Governors No.
50-91, dated July 3, 1991.) That bill granted bank affiliates
full securities powers, including mutual fund powers. For
jurisdictional reasons, the bill did not contain any firewall
provisions, including mutual fund firewalls. It did, however,
establish a full "two-way street" by allowing all securities
firms, including those affiliated with insurance companies and
commercial corporations, to acquire banks.
The bill was then referred to three other House Committees,
including the House Energy and Commerce Committee. As expected
(See Memorandum to Board of Governors No. 59-91, dated August 13,
1991), the Energy and Commerce Committee deleted all provisions
that would permit affiliations between commercial corporations or
insurance companies and banks. However, the Committee also
included strong firewall provisions, including many of those
recommended by the Institute. (See Memorandum to Board of
Governors No. 68-91, dated September 12, 1991.)
Current Status
The two House Committees have agreed tentatively that the
bill to be reported to the House floor will grant bank securities
affiliates securities powers but will not contain any provisions
allowing commercial corporations or insurance companies to become
affiliated with banks. The bill likely will contain firewall
provisions reported by the Energy and Commerce Committee.
Outlook
The tentative agreement reached between the two House
Committees increases the likelihood that Congress will enact
comprehensive banking legislation this year, which includes the
repeal of the Glass-Steagall Act, particularly since the Senate
Banking Committee reported a bill earlier this year granting
banks full securities powers. Senate floor action is anticipated
in early November.
On the other hand, press reports indicate that the American
Bankers Association and the Treasury may oppose the compromise
reached by the two House Committees because of the strict
firewall provisions and limits on bank insurance activities. In
addition, with a crowded legislative agenda and the limited
number of legislative days remaining in this session, it may be
difficult for Congress to enact comprehensive legislation this
year.
We will keep you advised of further developments.
Matthew P. Fink
President