1 See Memorandum to Board of Governors No. 3-97, Federal Legislation Committee No. 1-97, and Public Information Committee No. 2-97, dated January 13, 1997.
February 12, 1997
TO: BOARD OF GOVERNORS No. 6-97
FEDERAL LEGISLATION MEMBERS No. 3-97
PUBLIC INFORMATION COMMITTEE No. 4-97
RE: INSTITUTE TESTIFIES ON FINANCIAL SERVICES REFORM MEASURE
______________________________________________________________________________
On February 11, the Institute testified before the House Banking Subcommittee on
Financial Institutions and Consumer Credit regarding H.R. 268, the "Depository Institution
Affiliation and Thrift Charter Conversion Act." The bill would, among other things, create
financial services holding companies that would be permitted to own insurance, securities, and
banking firms. The bill would provide for functional regulation of each of these entities and
would create a new oversight committeethe National Financial Services
Committeecomprised of the Treasury Secretary, the heads of all the federal banking agencies,
the SEC Chairman, and a designated insurance commissioner. The legislation was introduced
on January 7 by Subcommittee Chair Marge Roukema (R-NJ) and Rep. Bruce Vento (D-MN),1
the senior Democrat on the subcommittee.
The Institute testified that five basic principles should underlie any legislation to
restructure the regulatory framework governing the financial services industry. Specifically,
Congress should:
grant banks full mutual fund powers (e.g. the ability to sponsor and underwrite mutual
funds and to have bankers serve on fund boards);
modernize the federal securities laws to address bank-mutual fund activities;
permit banks, securities firms, insurance companies, and commercial entities to own and
affiliate with each other;
provide for functional regulation of each entity (bank, securities firm, insurance company,
etc.) within the resulting diversified organization; and
create an oversight system that protects consumers while minimizing the potential for
distortion of the marketplace through inappropriate regulatory requirements.
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The Institute testified that H.R. 268 contains important provisions that implement each
of these principles and lays a firm foundation upon which Congress may build an improved
financial services regulatory system. However, the Institute testified that the legislation should
be revised in several ways. Specifically, the role of the National Financial Services Committee
should be limited to that of a coordinating and advisory body, and should not be granted broad
substantive authority that would conflict with functional regulation. The Institute also
recommended revisions regarding, among other things, bank mutual fund powers and
modernization of federal securities laws.
Additional hearings on H.R. 268 are scheduled for February 13 and February 25. More
hearings on other pieces of financial services modernization legislation are planned for March
and April. House Banking Committee Chairman Jim Leach (R-IA) has said he hopes to bring a
bill to the House floor by the July recess.
We will keep you informed as this legislation develops. Enclosed are Subcommittee
Chair Roukema’s opening statement, and the Institute’s oral and written testimony.
Matthew P. Fink
President
Attachments (in .pdf format)