“(7) A savings and loan holding company, as de- institution or institutions of which meet the qualified The CHAIRMAN. Senator D'Amato. OPENING STATEMENT OF SENATOR D'AMATO Senator D'AMATO. Mr. Chairman, I want to welcome Alan Greenspan to the committee this morning to discuss legislative proposals to reform the laws governing the financial services industry. Chairman Greenspan in his testimony specifically addresses proposals introduced by you, Mr. Chairman, and Senator Garn, The Financial Modernization Act; and Senators Wirth and Graham's proposal, the Financial Services Oversight Act. While I applaud the efforts of my colleagues, I would hope that they, Chairman Greenspan, and other witnesses appearing before the committee will direct their attention to a bill which Senator Cranston and I will introduce at noon today. This legislation is entitled the Depository Institution Affiliation Act of 1987. The legislation draws on the previous efforts of Senators Proxmire, Garn, Wirth and Graham, the recommendations of the FDIC report entitled "Mandate for Change," many of the recommendations contained in Chairman Greenspan's testimony today and before the House Banking Committee, and the recommendations of the Financial Services Council. The Depository Institution Affiliation Act addresses all of the concerns raised by Chairman Greenspan in arguing for reform of the financial services industry. The legislation briefly, Mr. Chairman, would permit banks to respond to new competitive conditions at home and overseas. It would enable consumers to realize lower costs through expanded competition in all lines of financial products and services. It would recognize the benefits of permitting financial services to be delivered through the holding company framework. It would recognize the need to strengthen holding company firewalls. It would restrict bank lending to all affiliates of the bank holding company. It would prevent conflicts of interest as a result of strong anti-tie-in legislation and strong civil penalties as well as criminal penalties. It would increase capital adequacy requirements of banks and thrifts who opt into the holding company structure, something which I think is very, very important. And it would promote a system based on functional regulation. If you're in the securities area, you should be regulated by the SEC. If you're in the banking area, then the appropriate regulator would be the banking regula tors. The Depository Institution Affiliation Act therefore addresses each of the concerns articulated by Chairman Greenspan. However, unlike S. 1886, which Chairman Greenspan seems to be endorsing this morning, the Depository Institution Affiliation Act is broader in scope. It creates an alternative regulatory structure which permits under a holding company structure commercial banks, investment banks and other providers of financial services and products to be affiliated with each other. I will not go into an exhaustive analysis of the bill at this time since we will be introducing it later today. I believe that this pro posal merits the attention of Chairman Greenspan and hopefully other members of this committee. Chairman Greenspan, you can be sure Senator Cranston and I will be looking forward to your comments on our proposal. Thank you, Mr. Chairman. The CHAIRMAN. Senator Riegle. OPENING STATEMENT OF SENATOR RIEGLE Senator RIEGLE. Thank you, Mr. Chairman. First of all, welcome, Chairman Greenspan, and I'd like to say at the outset, to express my own view, that Congress clearly ought to be the ones that write the law or set the law in this area and whether we act before the moratorium expires or whether we act after it expires, I think that the pattern of activity ought to be driven by the written law and not in any other way. So hopefully we can see that happen. There are a number of proposals on the table. You comment on some today in your prepared remarks. There may be additional proposals to look at beyond that. So I think clearly we've got an active debate going and in a sense I think the broader the debate, the more participants in it, the better the end result is likely to be. So I'm going to be very interested not only in having you highlight your comments today for us but to respond to questions that we have. I'd like to also say that since you've taken over at the Fed, it's, one might say, been an exciting time-probably too exciting. But I think the view is widely shared here that was expressed in a Wall Street Journal piece the other day that you really have stepped into that job strongly and have served well in a difficult time, and I know I appreciate that and I think that's the general feeling I hear from colleagues in the Senate. So I just want to acknowledge that and thank you for those efforts and know that they will continue. The CHAIRMAN. Senator Garn. OPENING STATEMENT OF SENATOR GARN Senator GARN. Thank you, Mr. Chairman. In passing the Competitive Equality Banking Act this past summer, we in Congress took an oath to do two things. First, we promised to conduct a comprehensive review of our banking and financial laws and make decisions on the need for financial restructuring legislation before March 1, 1988, when the moratorium expires on expanded products and services for banks. Second, we vowed not to extend the moratorium even if we were not able to pass a bill by that time. Mr. Chairman, you have worked hard to see that Congress keeps its word on both promises and I support your efforts completely. The committee has held extensive hearings on the changing markets for financial products, on the tremendous technological innovations and on the impact of internationalization of capital markets. Combining these with hearings in the three previous Congresses, we now have thousands and thousands of pages of testimony on the need for restructuring the financial services industry. Although I look forward to these hearings, I suppose I've become a little bit weary after 13 years. Chairman Proxmire and I sat here 13 years ago and he even before that, talking about the need to modernize our financial structure. If anybody had told me that I would serve for 13 years and we still were struggling with the problem, I wouldn't have believed it. I suggest that it is way past time for us to take action. Today, we do begin consideration of legislative proposals growing out of that hearing record. I am pleased that Senator Proxmire and I have agreed to cosponsor S. 1886, The Financial Modernization Act. This is the bill that would substantially reform the Glass-Steagall Act while leaving intact the authority of the States to prescribe and regulate the insurance and real estate activities of their State-chartered institutions. I have already inserted a lengthy floor statement in the record detailing my reasons for supporting the bill which, I will not repeat here. I would only say that I think it is now a very good bill, despite some reservations that I still have. I also welcome other efforts by members of this committee to address the important issues we face by putting new proposals on the table. Senators Wirth and Graham have sponsored a very thoughtful and ambitious bill that is consistent with the Proxmire-Garn bill, but it is more far-reaching. The Financial Services Oversight Act would truly change the landscape of the financial services industry and its regulators. Likewise, as Senator D'Amato has said, he and Senator Cranston are joining today in a separate bi-partisan effort to introduce a bill that would go even further. It's rather comforting to know that Senator Proxmire and I have become the real moderates on this committee by merely promising to repeal substantial portions of Glass-Steagall. In these hearings during the next 2 months, I am hopeful that we can air all the issues, reach a consensus on the type of legislation we want to send to the House, and hopefully the House, after decades of inaction, will decide it's time to do something about the problem. Turning to today's hearing, I certainly wish to welcome Chairman Greenspan in his first appearance in his capacity as Chairman of the Federal Reserve Board. I'm very pleased that the board has taken such a strong position in favor of the Financial Modernization Act. I would like, however, to sound a note of caution. The board has applauded our bill's approach for preempting State law in conducting new securities activities through a holding company affiliate regulated by the board. Your testimony views this as a possible precedent for the consideration of other products and services. Let me say here that I do not agree. I reluctantly agreed to preempt State law only because securities activities have been regulated primarily at the Federal level for the past 50-odd years. That is not true of other financial products like insurance. I will strongly oppose any efforts to take this authority away from the States, just as Senator Proxmire and I opposed this effort in 1984. Again, Mr. Chairman, I applaud your efforts to keep this committee's first commitment to consider new legislation well before the expiration of the moratorium. We have enough time to move a bill through the Senate and we certainly should do so. Chairman Greenspan, I am pleased that you're here today to testify before the committee. The CHAIRMAN. Senator Shelby. OPENING STATEMENT OF SENATOR SHELBY Senator SHELBY. Thank you, Mr. Chairman. First, may I congratulate you, Mr. Chairman, on the speed with which you have submitted a proposal that is so satisfactory to so many. Also, I welcome you, Chairman Greenspan, with us again today. We appreciate you taking your time to share with us your opinions on some of the proposals. Mr. Chairman, I have a couple of brief comments, but may I ask that my statement be printed in full in the record? The CHAIRMAN. Without objection, so ordered. Senator SHELBY. The moratorium, as most of us already know, will expire on March 1. This moratorium has brought us some time and it is hoped that we will put that time to good use. I would like to see a viable blueprint solidified as soon as possible. While I agree that the banks' ability to compete has been sorely limited, safety and soundness and the protection of government subsidies remain my primary consideration. Today, I am specifically interested in what you, Chairman Greenspan, feel were the public policy implications of the stock market's recent volatility. Immediately after the crash, opponents of the repeal of parts of Glass-Steagall said, "Aha, aren't we all glad that Glass-Steagall is intact?" Of course, the other side of the coin is the argument that banks survived fine, but the recent scare indicates the need to strengthen banks by providing new sources of profit and allowing banks to diversify risks. I would like to hear your analysis, Mr. Chairman, of the specific improvements in the health of the banking industry and the corresponding diminished threat to bank health that future market volatility would pose if Chairman Proxmire's bill became law. I would also appreciate it, Mr. Chairman, if you would address once again the issue of concentration in the financial industry. You have said that the Federal Reserve Board could tolerate provisions limiting the merger of large banks and securities firms, but that you did not embrace the provision. During your confirmation hearing you said you knew of no particular advantage enjoyed by superlarge banks. The greatly diminished stature of American banks among the world's largest banks seem to be cause for alarm to me. In your opinion, does the Proxmire-Garn bill provide for the creation of financial services companies that will be competitive in the influence and in the capabilities of the global marketplace? [The complete prepared statement of Senator Shelby follows:] |