Statement of Administration Policy: S. 1886 - Financial Modernization Act of 1988

(Senate)
(Proxmire (D) Wisconsin and Garn (R) Utah)

The Administration supports enactment of S. 1886 as the next step in the modernization of our Nation's banking laws. Enactment of this legislation would have several major benefits. For example, the bill would:

—    Reform the Glass-Steagall Act and amend the Bank Holding Company Act to bring new capital and new competition to the investment banking industry;

—    Permit bank holding companies to establish separately capitalized securities affiliates and permit qualified securities firms to establish bank affiliates to provide a wider range of products and services for consumers, businesses, and State and local governments; and

—    Establish a number of important new safeguards to separate insured banks from their securities affiliates, thus protecting insured depositors without expanding the role of the Federal Government.

The Administration opposes provisions of S. 1886 that would:

—    Require Congress to act separately at some point in the future to permit securities affiliates to underwrite and deal in equity securities;

—    Provide the insurance industry with unwarranted Federal protection from competition, while at the same time restricting the authority of national banks and bank holding companies to offer new products and services to consumers; and

—    Needlessly interfere with the authority of the states to determine State bank powers, thereby undermining the dual banking system.

The Administration is concerned about provisions of S. 1886 that would:

—    Restrict affiliations between large banks and securities firms; and

—    Impose new legislative disclosure and reporting requirements.

The Administration would oppose amendments to S. 1886 that would

—    Further restrict the authority of States to authorize new products and services for State-chartered institutions, regardless of where the parent holding companies may be headquartered;

—    Add new, unnecessary restrictions on inter-affiliate transactions that do not promote safety and soundness; or

—    Further restrict the ability of United States financial institutions to compete domestically or internationally.