June 13, 1995
TO: BOARD OF GOVERNORS No. 55-95
FEDERAL LEGISLATION COMMITTEE No. 19-95
FEDERAL LEGISLATION MEMBERS No. 19-95
BANK INVESTMENT MANAGEMENT MEMBERS No. 14-95
RE: INSTITUTE TESTIFIES ON FINANCIAL SERVICES REFORM
_____________________________________________________________________________
On June 8, the Institute testified before the House Commerce CommitteeGs Subcommittee on
Telecommunications and Finance on H.R. 1062, a legislative proposal to repeal the Glass-Steagall Act
and eliminate other statutory barriers between commercial banking and the securities business. Institute
President Matthew Fink told the Subcommittee that while the bill would remove unnecessary legal
barriers to bank mutual fund activities, and would modernize the securities laws (both of which the
Institute supports), it was nonetheless seriously flawed and in its present form would place many mutual
fund firms at a great disadvantage. He said “In particular, its restrictions on affiliations will bar many
securities firms from entering the banking business.”
The Institute testified that the flaws in the bill arise from the fact that its approach is based
almost entirely on concepts of bank regulation, as opposed to securities regulation, which have
developed very differently from one another under the separation that was mandated by the Glass-
Steagall Act. In a recent survey of the mutual fund industry conducted by the Institute, 40 percent of
respondents were found to have insurance affiliates, 14 percent have real estate affiliates, and 12 percent
have non-financial affiliates. Under the proposed legislation, the Institute continued, these companies
would be faced with the difficult choice of either breaking up their long-standing lines of business in
order to take part in combined banking and securities activities, or retaining their existing businesses and
accepting a permanent disadvantage in relation to the combined firms. Banks, on the other hand, would
be under no obligation to make such choices.
To accommodate the differing needs of the two industries, the Institute offered the Committee
several alternative approaches ranging from the elimination of all restrictions on affiliations, to deeming
insurance to be a permissible activity, and at the same time allowing non-financial activities to constitute
a small percentage of the assets of a financial services holding company.
The Institute also objected to the bill's provision making all financial services holding companies
subject to supervision by the Federal Reserve Board, a bank regulator, as extremely damaging to the
securities industry.
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This legislation is expected to reach the House floor before the July 4 recess, after having been
marked up in mid-June.
We will keep you informed as this matter develops. For additional information, please contact
the Legislative Affairs Department at (202) 326-5890. This memo can be found on FUNDs, the
InstituteGs Fund User Network and Delivery System, under Legislative Affairs; Washington Update.”
Copies of the oral and written testimony are enclosed.
Julie Domenick
Senior Vice President
Legislative Affairs
Attachments