them no good. We'd gladly get rid of it tomorrow. The only fear is, maybe someone would let more people be in the banking business. How will we compete with the nonbank banks that are able to operate? But we are not really worried about that, if you stop it here, if you don't add any more. I think Chairman Volcker said, testifying before you last year, that the nonbank banks only amount to 2 percent or less of the deposits. So that doesn't really scare us, and I don't think it scares the banks very much. And where they are growth limited and limited only to those few who are at a reasonable activity at the time of your bill last year, I don't think it is a major thing at all. As far as we're concerned, we wish they didn't have them. Even a very, very small nonbank bank is still competition. In a perfect world, why have them? I would agree with that. We will get rid of ours. The CHAIRMAN. Senator D'Amato. Senator D'AMATO. Thank you, Mr. Chairman. I had this very cogent, powerful statement, Mr. Chairman, but in the interests of time, I'd ask that it be submitted to the record, as if read in its entirety. The CHAIRMAN. Without objection, so ordered. [Laughter.] Senator CHAFEE. You have got me tilting here, but I think I'll [laughter] I'd like to put mine in too. The CHAIRMAN. Without objection, Senator Chafee's statement will be put in, in full too. Senator D'Amato. WHICH BILL WOULD YOU ENDORSE Senator D'AMATO. I am wondering if I might ask the panelists, starting with Mr. Silver, if you were given the option of endorsing only one of the bills before the committee--[Laughter.] Senator GARN. Which poison cup would you like? Senator D'AMATO [continuing]. S. 1886, S. 1891, or S. 1905, which would you endorse, and in 30 seconds or less, why? Mr. SILVER. I should have left. [Laughter.] I think, Senator, not because you asked the question, but if I were given that very unpleasant choice, and I think-and Senator Garn's home State is one of the few States that gives the convicted murderer his choice of hanging or being shot-and I do look at this- Senator GARN. No, we've added lethal injection too. [Laughter.] Mr. SILVER. I'm glad you've kept up with the latest technology. [Laughter.] I think, Senator, if we are going to go down the road of financial integration, let's go all the way. I think that we have got to be very, very aware of the kind of things that Chairman Ruder talked about, as far as adding vitally important protections. I do feel the kind of nostalgia that Jerry Corrigan and Chairman Volcker have for a world in which banking and commerce are separated, but if there has been integration across the fences, the integration has not only been in the financial services section but the integration has been right across the line. GMAC and other kinds of financial activities on the part of corporations have long been accepted in this country, so that if you are going to go on the road of integration, I would prefer your approach, but I would say, under the most stringent kinds of safeguards. Senator D'AMATO. Mr. O'Brien? Mr. O'BRIEN. Well, Senator, I don't know whether I will accept the lethal injection or something else, but I would use Senator Chafee's term, and I would tilt in your direction, if I can put it that way. That is not to disparage the other bills, and I'm not just saying that, because, as I said before, I think that the bills represent a process which is very, very important. I don't think either one of them or any of them do the job to my satisfaction, but the process of moving forward is the way to go, as far as I can see it. Now to do the very good job, you should couple it with our approach. Some firewalls and some flexibility, will enable you to develop legislation over the coming years, because the world is not going to stand still in 1990, any more than it has in 1987. Senator D'AMATO. Mr. Bachmann? Mr. BACHMANN. Well, I end up at the same place, and I go back to my statement earlier that it would appear that under the other two pieces of legislation, as I think Senator Garn himself pointed out, it does not provide the degree of a two-way street that is in the legislation that you've proposed. I think from the standpoint of our members, that would be the one that would enable most of them to participate-enable all of them to participate. Senator D'AMATO. Mr. Downey? Mr. DOWNEY. Senator, I think that that's where the Nation might eventually end up a few years from now, perhaps. But I don't see how that's really possible. Even though it's my best choice, first of all, of the three offered, I don't see how that's really possible by March 1. But if you were to adopt our suggestion, which is, take all the existing securities powers of banks and put them in an affiliate and stop the regulator from offering powers and keep this in control of Congress. Then if you give a power, beyond the ones that they have-and see how that works, then maybe you would revisit it 6 months from now and give them another power, if the firewalls work, Senator. Senator D'AMATO. Well, let me make my position clear; first, this Senator would not be in favor of that approach. Second, it would seem to me that if we were actively engaged in a process that would lead to the completion of a legislative package, that the regulators certainly would get that message and would not take precipitous action. So I'm not so concerned about the regulators. If it came to a situation where they could see that Congress was not going to move, and I'm not for extending that moratorium. I think we need the deadline to keep the process moving, and I think-I am going to serve notice, this Senator is not engaged in the process of attempting to provide additional time vis-a-vis extension of the moratorium. And I think you had better wake up to that. I think you had better begin to become part of that process of seeing to it that you are really participating in what the final legislation will be. And I thank the Chairman, and I thank the members of the panel. The CHAIRMAN. Thank you. Senator Graham. Senator GRAHAM. Thank you, Mr. Chairman. Mr. Bachmann, you raised some questions as to whether we were focusing our attention on the right issues that we may be dealing with, lesser significant questions, to the detriment of what our true agenda should be. If you could write the agenda of what the Congress should be attending to in the next 12 months, what would you include? Mr. BACHMANN. You mean from the standpoint of this legislation? PRIMARY OBJECTIVES Senator GRAHAM. From the standpoint of dealing with what you consider to be the primary problem areas in America's financial institutional structure, what do you think our priority objectives should be? Mr. BACHMANN. OK. I think-in my view, you have to start with the consumer. You start with the customer, and you work back from there. You look at what serves the customer's interest. And second, the taxpayer, because, to the extent that you are going to have disasters, the taxpayer always mops up afterward. You know, a lot of us have a lot of money in a bank in Chicago we never intended to, because it had to be done. It was, in my mind, clearly in the national interest, but- Senator GRAHAM. Excuse me, Mr. Bachmann, that is not taxpayers' money. Those are premiums paid by the member institutions. I read an article the other day that talked about how we bailed out with taxpayers' money, heard it on the nightly news, that big savings and loan. So that is not a taxpayer burden. Excuse me for interrupting, but that comes from the insurance premiums of the FDIC or the FSLIC, as the case may be. Mr. BACHMANN. OK. Well, I stand corrected on that. As far as it seems to me we should start with what serves the customer. The key issues you have to look at include technology where it fits in, where the international competition fits in. Then I think you look at, certainly as you look at the securities industry, you look at how do you create what has come to be known as the firewall, so that risk doesn't spill in? I think the other thing you look at is, how do you make sure that you have regulations, so that from the standpoint of the consumers, everyone is dealing with people that have the same qualifications, that have to adhere to the same regulatory requirements. This is a major frustration to firms in the retail securities industry today. And it is not that the bankers are doing something wrong, it is that the Supreme Court has told the SEC it simply doesn't have that jurisdiction. Senator GRAHAM. In terms of the customer orientation, which I strongly agree with, there's been some concerns expressed about the fact that in 1927, the banks used their prestige and their name to bring into the securities market people who were timorous and risk averters, but were induced by the magic of the name of the institution to make risk, which proved to be to their detriment, eventually. If you assume that we, in a capitalist society, have to operate on the assumption that consenting adults can engage in what commercial activities they choose to do so and be held accountable, why wouldn't those consenting adults, which include both individuals and public and private institutions, which utilize the securities industry be better served, if they had a wider range of choices as to where to secure that service? Mr. BACHMANN. I don't think that they would be disserved by a wider range of services, as long as the choices are regulated in a consistent manner. Today, as I said, what we run into is FDIC prominently displayed in ads that are selling clearly un-FDIC insured products, and in some cases, situations where there is no insurance. I think what we would look forward to is basically-and I am talking about in the retail securities business-the level playing field. Senator GRAHAM. So you see the issue as not one of the need to restrict banking as a choice of securities customers but rather accepting that as a potentially desirable expansion of opportunity to then assure that that opportunity is equitable, in terms of the competitive circumstances under which it exists; is that right? Mr. BACHMANN. We would have no difficulty competing with the banks, as long as we have the same range of services and compete with the same complement of products and services. We are not frightened by fair bank competition. Mr. O'BRIEN. Senator, may I amplify that just in a small degree. You alluded to the need for opportunity for various services, and I think that's perfectly correct. The fact of the matter is, however, that the availability of the services to the public today is astounding, and only a person who has been around in the securities industry would realize that fact. It is incredible. In fact, the problem today is, in a certain sense, the diversity and the complexity of the services makes choice more challenging than ever before. The second point I would make is, despite this great opportunity for services, I think consenting adults should be free to do as they wish in the commercial world, perhaps otherwise, too. Suffice it to say that we have a situation where there is, in my judgment, a significant and a major difference between the two industries. The banking business and the securities business, from my experience and judgment, they're different. They have to be treated in a different way. They have to be regulated in a different way, in order that the element of public protection, along with the diversity and opportunity can be provided. Mr. SILVER. Senator, if I may, I am glad Ed O'Brien and I aren't up as appointees for judicial posts, but I too believe that consenting adults should be able to do just about anything, but if you recall, and I am sure you do, long before the trade mark law- Senator GRAHAM. I think the chances are, you would have been confirmed by this time. [Laughter.] Mr. SILVER. Thank you, sir. The common law developed the concept, before trademark and copyright statutes, of palming off and even consenting adults may not have palmed off on them through appearance or otherwise, one product when they think they are buying something else. And that's what we really have to prevent here. It is not the question of preventing Ed O'Brien or myself or one of the bankers from getting his banking or securities services from somewhere else, but it's the imprimatur of the bank is the problem. The fact is that banking and securities are two very different kinds of businesses and products. We have got to prevent either the express or the implied palming off of one service for something very different. And the lessons of history, unfortunately, are that that has been very, very difficult to do. It wasn't done in 1929, it was not done with respect to the REIT's, as recently as the 1970's. Whether that-and the degree it's possible, is your task, and it is not an easy one. Senator GRAHAM. Thank you, Mr. Chairman. The CHAIRMAN. Thank you, Senator Graham. Senator Wirth. Senator WIRTH. Thank you very much, Mr. Chairman, and I thank you all for being here. I couldn't agree with you more, Mr. Bachmann, about how to make the best use of our time. Once again, Mr. Chairman, we are not talking about the basic goals that we're trying to foster, as it relates to our economy, but are once more we're finding ourselves focused on the narrow turf of powers. Who gets to do what rather than why do we want various institutions to be involved in this. What are we trying to accomplish long term. All of you in the past have been very eloquent in talking about the need for capital accumulation, the fact that we have markets that people have faith in, will invest in, the liquidity of our marketplace, the fact that that's given us enormous advantages. And it seems to me that that's where we ought to be starting in this debate. That is where we ought to be starting in this discussion, and that is, in part, why Senator Graham and I have picked up on some of the themes that Gerry Corrigan outlined in introducing the legislation that we have introduced. It seems to me that these are very special institutions. Regulation ought to be consistent in this. There ought to be some way of rationalizing the very, very, different kinds of institutions that we have, which are becoming more and more disparate. MECHANISM FOR COMBINING REGULATORY PROGRAMS Shouldn't we, in looking at our financial institutions and what we want them to be, have some kind of a mechanism for pulling together these various regulatory programs? We have suggested in our legislation, that we ought to move toward that kind of a mechanism. Do you all think that there is a need for doing that, or is the current, I would call it, Balkinization, regulatory framework adequate for doing the job today, and is it going to be adequate in the 21st century? Let me ask you to start, Mr. Silver. Mr. SILVER. I guess I said so. I have given an answer before, so in a sense, this may be a soft pitch for me to swing at, but I will give it again. I could come up with instances in the past of inadequacies arising from a Balkanized regulatory system. There has been an integration of products-I can't emphasize that strongly enough—in addition to the integration of the providers of those products. And |