February 6, 1995
TO: BOARD OF GOVERNORS No. 19-95
FEDERAL LEGISLATION COMMITTEE No. 7-95
FEDERAL LEGISLATION MEMBERS No. 7-95
RE: D’AMATO LEGISLATION ON FINANCIAL SERVICES REFORM
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On February 2, Senate Banking Committee Chairman Alfonse DAmato (R-NY) introduced his
sweeping financial services restructuring bill, S.337, "The Depository Institution Affiliation Act." The
bill authorizes the creation of a Financial Services Holding Company (FSHC), a new type of corporate
structure which could own commercial banks, securities firms, insurers and commercial and industrial
companies. The D’Amato bill is similar to the 1991 Bush White House bill and to legislation D’Amato
co-sponsored with former Banking Committee Member Alan Cranston. The Institute, for the most part,
supported the principles embodied in the earlier legislation.
Broadly speaking, under the D’Amato bill, FSHC activities would be required to be conducted
through separately capitalized subsidiaries, which would be regulated along functional lines. (The
securities affiliate would be regulated by the SEC.) The legislation would require that securities
activities, insurance underwriting, and real estate development be conducted in holding company
affiliates, rather than in bank subsidiaries, in order to protect insured deposits. Affiliate transactions
would generally be held to the arms-length standards set out in sections 23A and 23B of the Federal
Reserve Act, and any insured depository that is controlled by a FSHC would be subject to capitalization
standards. Like earlier bills, the D’Amato bill would create a Financial Services Oversight Committee
made up of financial regulatory agencies, including the SEC, to help ensure streamlined and uniform
regulations.
Chairman D’Amato has indicated that financial services reform will be a priority for the Banking
Committee. Depending on the disposition of other (primarily Whitewater-related) matters, hearings on
the D’Amato bill may start soon. While there is support in the House Banking Committee (Richard
Baker (R-LA) Chairman of the new Capital Markets, Securities, and Government Sponsored Enterprises
Subcommittee expects to introduce a similar bill), it is clear that House consideration of the
D’Amato/Baker approach will be controversial. Full Committee Chairman Leach has historically
opposed eliminating the banking/commerce barrier, and, as importantly, has announced that financial
services reform legislation will be considered at the full Committee level. The latter will affect Baker’s
ability to act as Subcommittee chair.
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We will keep you informed as these matters develop. For additional information, please contact
the Legislative Affairs Department at (202) 326-5890.
A copy of Chairman D’Amato’s Congressional Record statement and Wall Street Journal article,
a section-by-section analysis of the bill and the bill are attached.
This memo can be found on FUNDS, the Institute’s Fund User Network and Delivery System,
under "Legislative Affairs; Washington Update."
Julie Domenick
Senior Vice President
Legislative Affairs
Attachments