December 6, 1991
TO: BOARD OF GOVERNORS NO. 85-91
RE: CONGRESS PASSES NARROW BANKING BILL; GLASS-STEAGALL
NOT REPEALED
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Last week, both Houses of Congress passed and sent to the
President a narrow banking bill that recapitalizes the Bank
Insurance Fund and makes certain changes to the deposit insurance
system and other bank regulations. The bill does not repeal the
Glass-Steagall Act or include any provisions concerning
securities powers for banks.
Actions in Congress
In floor activity that spanned two weeks, the House of
Representatives voted against legislation that repealed the
Glass-Steagall Act and voted down narrower legislation that
provided for, among other things, interstate banking, but which
did not include any provisions granting banks securities powers.
Finally, on November 21, the House voted to approve a very narrow
bill that principally addressed deposit insurance issues, but
which did not address either Glass-Steagall repeal or interstate
banking.
At the same time, the Senate voted to strip its banking
legislation of most provisions concerning bank securities
activities. The bill originally passed by the Senate was broader
than the legislation approved by the House and included a
compromise on interstate banking. However, these and remaining
securities-related provisions were dropped in the House-Senate
conference, leaving a bill nearly identical to the legislation
approved by the House.
Summary of Legislation
As finally passed, the banking bill authorizes the Bank
Insurance Fund to borrow $30 billion from the U.S. Treasury and
authorizes borrowings from Federal Financing Bank. The bill also
makes various reforms to bank supervision, including increased
auditing requirements and required prompt corrective actions in
the case of undercapitalized institutions. In addition, the FDIC
would be required to use a "least-cost" method in resolving
failing institutions in most instances.
Other provisions of interest include the following:
Truth-in-Savings. The legislation includes the "Truth in
Savings Act", which would require depository institutions to make
uniform disclosures concerning interest rates payable and fees
assessable on deposit accounts. Earlier versions of the Truth in
Savings Act would have required the SEC and the Federal Reserve
Board to consult annually to determine whether the SEC's mutual
fund advertising regulations and those established under the
Truth in Savings Act provided comparable information to
consumers. This provision was dropped from the final bill.
Brokered Deposits. The bill places further restrictions
on brokered deposits, by limiting them to highly-capitalized
institutions. The FDIC could grant waivers to allow other
institutions that meet minimum capital standards to accept
brokered deposits; however, interest on these deposits would be
limited.
Lampf case. The bill makes the Supreme Court's Lampf
decision (which established a uniform statute of limitations for
cases brought under Section 10(b) of the Securities Exchange Act
of 1934) non-retroactive. Thus, any such securities fraud cases
that were commenced before the Lampf decision can proceed or (if
dismissed) be reinstated if they would have been considered
timely filed under the statute of limitations in effect at the
time the suit was originally brought. However, the bill does not
extend the statute of limitations established in Lampf for cases
commenced after the Supreme Court decision.
Powers of State Banks. The bill generally prohibits
insured state banks from engaging as principal in any activity
not permitted for national banks, unless the FDIC determines that
the activity poses no significant risk and the bank is in
compliance with applicable capital requirements. (This provision
becomes effective in one year) However, a provision that would
have expressly prohibited insured state banks from underwriting
securities was dropped.
* * *
At this point, it is uncertain whether there will be
serious legislative efforts in 1992 to repeal or modify the
Glass-Steagall Act. Similarly, it is uncertain whether the bank
regulatory agencies will renew their efforts to modify the
prohibitions of the Glass-Steagall Act though administrative
action.
Matthew P. Fink
President