can hope for some greater rationalization of the world marketplace and we have no mechanism for doing that.

The question, having stated all of that and the purpose of that kind of an oversight commission built into the legislation, is to ask for your reaction to that as an idea and mechanism that ought to be set up.

Mr. GREENSPAN. Well, Senator, let me say first that there are going to be a number of studies of the October 19th, 20th and thereafter period. The current one, the Brady task force, will be looking into a number of issues with respect to the presumed causes of the market decline and one of the things I would caution is that whenever you have a phenomena of this sort, it is always an extraordinarily more complex set of interrelationships than seem to appear on the immediate surface.

As a consequence of that, I must say I would be hesitant to recommend that this committee or the Congress move forward in making assumptions about what actually occurred in these various different periods

Senator WIRTH. Sir, we're not doing that. Let me just interrupt. This doesn't do that.

Mr. GREENSPAN. I just wanted to merely address the immediate

concern.

Senator WIRTH. I understand the immediate concern and I understand the need for caution and we have certainly not said that we ought to jump in with x, y, or z specific structural change.

What this legislation says, Mr. Greenspan-and I think that the administration has for the last 6 years missed this point and I think that this is being missed as well if we just focus on powers legislation is the fact that we have got to figure out how to rationalize and coordinate what goes on in New York, the New York Stock Exchange, what goes on in Chicago at the MERCK, what goes on with the relationship of that to CBOE, how that relates to the Comptroller of the Currency and various bank powers, and how, in turn, what we're doing in this country begins to relate internationally. If we don't do this, we're just nibbling away and continue to do so at the edge with some kind of a feeling that regulation or deregulation is the goal, which it's not; that we ought to be looking at the system overall.

There is no mechanism that I have seen in the Proxmire-Garn legislation that even attempts to address that. What we are attempting to do is to address that overall and at least set up a process for starting to look at that, which is the thrust of the oversight commission.

The question is, is that a good idea or not?

Mr. GREENSPAN. I was about to say-I'm sorry I didn't get to it earlier in my long answer, Senator-that it is a good idea. I think we sense the need for increased coordination amongst the various regulatory authorities. It occurs on an ad hoc basis, largely because clearly we all speak to each other constantly, and in effect, de facto, are creating coordination. But I certainly agree with you that the thrust of what you're saying is something with which we subscribe.

Senator WIRTH. I know my time has long ago expired, Mr. Chairman, but I would just point out finally that this kind of ad hoc co

ordination is not adequate to do the job. Nobody has the power to force compliance with any kind of a broad approach that might be agreed upon. Nobody has that kind of authority and power now. So consequently, we continue to have a number of conflicting and often squabbling jurisdictions which doesn't make any sense at all. We have conflicting capital requirements from one kind of operation to another which makes no sense at all. It seems to me that the argument is very strong for us looking very carefully at such a commission and such a coordinating mechanism and it seems to me, again as we were talking last week, Mr. Chairman, figuring out how this might be built into the thrust of what you and Senator Garn are doing is something that we ought to look at very carefully and probably do.

Thank you, Mr. Chairman.

The CHAIRMAN. Senator Graham.

Senator GRAHAM. Thank you, Mr. Chairman.

I'd like to continue to pursue the line of questions that Senator Wirth has been advancing.

Mr. Chairman, you stated that the Glass-Steagall provision is the single most important anomaly in our financial structure. What would you list as other anomalies that would justify congressional attention?

Mr. GREENSPAN. Well, I can list them as a private citizen and did. Let me just say as a private citizen that I think the McFadden Act and the Douglas amendment which restrict interstate banking struck me as a private citizen-and I must admit it doesn't strike me terribly different at the moment-as not very helpful.

If you would like, I will list a series of other lesser structural problems which might be useful in answer to your question.

Senator GRAHAM. I would like to see that and then I would ask that you supplement your list with this process question. In your statement on page 34 you state:

It seems to us that there are major advantages to proceeding on an incremental basis starting with securities powers where the rationale for change has been clearly established. In this way, we can have the benefits of change while gaining experience with the systems that are necessary to assure this change is carried out in a responsible and effective manner.

I would be interested in your assessment of once we've identified the other anomalies what sequence and process you would recommend the Congress undertake in order to deal with the resolution of those questions.

Mr. GREENSPAN. It's a very difficult question to answer, Senator, but I will try to answer it for the record.

Senator GRAHAM. The thrust of both of those questions is that I think that your list of anomalies is going to be a lengthy one. Mr. GREENSPAN. I'm aware of that.

Senator GRAHAM. And that it is difficult to arrive at a rational basis for sequencing of which parts of the anatomy we will treat first. That returns me to the position that is fundamental to the legislation Senator Wirth and I have introduced, that we need to look at the total system as a system and establish a process by which we can begin total reconstructive surgery as opposed to focusing on one aspect of the problem.

I am concerned that you seem to feel that we should take a finger-by-finger approach.

Mr. GREENSPAN. Senator, I must admit to you that it is not an easy decision to come to and I will also acknowledge that a goodly part is based not on what an economist thinks is the right thing to do in principle but what is feasible and practical to do in a legislative environment.

There's really one major reason why one does not want to go all the way discontinuously in a very major area of the economy. The reason basically is that as certain as one may be about what the outcome of a certain structure could be, you are never certain. And if you're wrong, if there are unforeseen technical problems in the structure, the cost to the economy could be large.

It's not elegant to go incrementally or, as you say, finger-byfinger, but it does have the advantage of delimiting the downside in that process. And we have concluded, as a Board, that considering all of the complexities that are involved, the repeal of GlassSteagall strikes us as a major important change which in and of itself will significantly improve the banking and financial structure of this country.

I would not wish to rule out in making that statement, Senator, that at some point further changes would not be appropriate or consistent with Glass-Steagall alterations.

Senator GRAHAM. Mr. Chairman, my time has expired. I'd just like to conclude with an observation that in this business of economics and politics, you have to decide how to expend the momentum for change which is available, whether to do it for small victory or for a larger objective.

I believe that prior to October 19 there was substantial momentum for change, as witnessed by the fact that the Congress passed legislation earlier this year well in advance of the crisis atmosphere of the last 6 weeks and did so with commitments to itself and to the American people that this was an interim step.

I do not believe that we ought to squander this opportunity for major change lightly on an important but I think relatively isolated aspect of the total problem and that in assessing the downside risks, that I think the downside risks of continuing with the incoherent regulatory pattern, a process that will as assuredly as we have done in our industrial sector see our financial institutions become dominated by foreign interests, we will continue to see major unregulated aspects of our financial institutions become more competitive with the regulated sector, therefore placing the regulated sector under greater stress in terms of its vulnerability— that those downsides risks are substantial, immediate, tangible, and that those need to be given serious weight in terms of whether we should take a total or incremental approach to dealing with this problem.

The CHAIRMAN. Senator Sanford.

Senator SANFORD. Thank you very much, Mr. Chairman. I had to preside so I couldn't be here for an opening statement, but I would appreciate your putting it in the record.

The CHAIRMAN. Without objection, it will be printed in full.

81-027 0 - 88 - 5

OPENING STATEMENT OF SENATOR TERRY SANFORD Senator SANFORD. Mr. Chairman, I commend you for holding the series of hearings you have planned for this morning, the remainder of this week and next week. I would also like to join my colleagues in welcoming Chairman Greenspan this morning and in congratulating him on his decisiveness and calm during the recent downturn in the stock market. I know we all appreciate Mr. Greenspan's quick decision to inject liquidity into our financial system. I also appreciate the thoughtful and comprehensive testimony he has provided us this morning.

Mr. Chairman, I would also like to commend you and our ranking minority member, Mr. Garn, for working together to present the committee with an excellent bill that takes this important step of permitting banks broader securities powers while also establishing crucial safeguards for the safety and soundness of our banks. In addition, I want to thank Senator Graham and Senator Wirth for their efforts in distilling the Corrigan plan into a legislative proposal. I believe the Graham-Wirth bill focuses attention on a number of critical issues, including access to the payments system and the need for greater coordination of our financial services regulators. I understand that our colleagues Mr. Cranston and Mr. D'Amato will also be introducing more comprehensive legislation embodying the proposal put forward by the Financial Services Council.

I look forward to today's hearing and the additional hearings that will follow on comprehensive financial restructuring. As I stated during our debates on S. 790, I am committed to examining the many questions that a reform of our financial services industry raises and to pushing for legislation that will place our financial services industry on a more competitive footing.

I believe that the time has come to reform many of the laws governing our financial system. If we are to maintain an open, competitive capital market and to allow our banks the opportunity to compete on a fair basis with the tremendous domestic and foreign competition they now face, we must establish a procompetitive environment. We can no longer permit markets developments, foreign actions, new technologies, and regulatory reforms to govern the future structure of our financial system.

I believe that we need to begin this process with some very fundamental questions-what do we want our financial system to look like when we finish the process? What long-term objectives should we keep in mind in mapping out a structure for our financial services? How do we protect our Federal deposit insurance system while allowing greater competition? Is there really a line between finance and commerce, and if so, should it be retained? I believe the legislative proposals that have been introduced and the testimony presented by Mr. Greenspan go a long way toward providing some of the answers to those questions and look forward to exploring the answers to these and other questions in more detail.

In light of the stock market crash, the economy is now viewed in terms of before and after, with October 19 being the point of demarcation. Yet, as we hopefully regain our equilibrium from the gyrations of the stock market, we should not foresake our long

term goals and policy objectives. Modernization of our financial system remains as necessary now-if not more so-as it was before October 19 and we should not be timid in implementing long overdue reforms.

Mr. Chairman, I commend your efforts in calling for these hearings and in presenting the committee with an excellent bill to use as a focus on our debate.

Thank you, Mr. Chairman.

While I've got the Chairman here, I do in my statement and I would like to commend him for his decisiveness in the recent downturn in the stock market as well as his cool hand. I thought that was a great influence.

Mr. GREENSPAN. Thank you, Senator.

Senator SANFORD. Mr. Chairman, I thank you for bringing together this piece of legislation. I certainly commend you for it. I think it's a splendid piece of legislation and I especially commend you for involving Mr. Garn and giving it a bipartisan approach that I believe will be very beneficial.

To my two colleagues here, I certainly thank them for getting the Corrigan plan into a workable piece of legislation and I think together now we've got some very good opportunities to have strong legislation.

Mr. Greenspan, if I may ask you just for an elaboration of what we've been talking about-and I don't think we have had your statement on it-if so, we will all pass-but on page 33, you urge us to give further thoughts to how the proposal contained in the Wirth-Graham bill for a broadly representative financial regulatory body could be incorporated into the structure set forth in the Proxmire bill.

Could you give us some at least preliminary thoughts on how you see the broader regulatory body meshing with the approach of the Proxmire-Garn bill?

Mr. GREENSPAN. Well, it gets in part to the issue of coordination which Senator Wirth was referring to. There are a number of elements in the bill which are really quite parallel to the ProxmireGarn bill and are not contradictory. There are certain elements which are quite different and you have to choose one or the other, but there are many elements which overlap and I think a number of the principles enunciated in the bill are worth serious thought. In general, I don't want to argue that one bill is exceptional and the other bill is poor. That's not the case. These are in many respects bills which focus on complementary areas. It's merely a question of how far the committee would like to move in that direction.

STATE REGULATED NONMEMBER BANKS

Senator SANFORD. You have commented on a number of collateral matters, but one that maybe is worth a little more elaboration, do you have any thoughts that you would like to express now on what we ought to do about the State regulated nonmember banks, as well as the so-called nonbank banks that aren't specially gathered up into these two pieces of legislation?