March 18, 1993
TO: BOARD OF GOVERNORS NO. 20-93
RE: STUDY ON "THE PARALLEL BANKING SYSTEM"
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The Economic Policy Institute, a public policy research
organization, recently released a study on financial services
regulation. The study contends that various types of non-
depository financial intermediaries (including mutual funds)
have, in recent years, come to constitute a "parallel banking
system," and that this development, in turn, has raised a number
of concerns, including distortion of the distribution of credit,
additional risk to the deposit insurance fund (due to the
weakening position of banks) and impediments to monetary policy.
While the paper focuses specifically on finance companies, it
recommends that all financial firms (including all firms that
accept funds from the public for investment) be made subject to a
new "Financial Industry Licensing Act", which would, among other
things, impose uniform reserve, capital, and liquidity
requirements and require compliance with the Community
Reinvestment Act and other fair-lending statutes.
Attached is a copy of the study, along with a press article
on its release.
Matthew P. Fink
President