The CHAIRMAN. And a statement by Senator Alan Dixon who had to leave will be printed in the record at this point.

[The complete prepared statement of Senator Dixon follows:]

STATEMENT OF SENATOR ALAN DIXON

Senator DIXON. I am pleased to be here this morning as the Banking Committee begins 6 days of hearings on banking reform legislation. There are currently two major reform proposals before the committee, S. 1886, the Financial Modernization Act of 1987, introduced by the distinguished chairman of the committee, Senator Proxmire, and the distinguished ranking Republican, Senator Garn; and S. 1891, the Financial Services Oversight Act, introduced by two very thoughtful members of this committee, Senators Wirth and Graham.

S. 1886 focuses on Glass-Steagall Act issues, and S. 1991 is based on the proposals Gerald Corrigan, president of the New York Federal Reserve Bank, made to the committee earlier this year.

As we begin these hearings I would like to make only two brief points. First, I think it is very important for the committee to report reform legislation before March 1 of next year. I think it is important to maximize the chances for enactment of legislation in this Congress, and that means sending a bill to the House just as rapidly as is possible.

Second, I hope everyone that has an interest in the reform process will work with the committee to report a bill within that time period. However, whether or not the committee is able to act, I want to make it clear that this is one Senator that will do everything he can to make sure that the moratorium is not extended. The moratorium was intended to create a brief period of time for the committee to address the fundamental reform issues we have not successfully addressed over the past several years. It was not intended as a substitute for making those long overdue reform decisions.

If Congress is again unable to address the reform issues, legislatively, therefore, the courts and the regulators will be making the decisions. So those with an interest in reform have a choice: Either work with the Congress on reform legislation, or be prepared to work with the regulators and the courts, because one way or another, reform will happen. To the extent that I have anything to say about it, the moratorium will not be allowed to be used to freeze the status quo beyond March 1, 1988.

Thank you, Mr. Chairman.

The CHAIRMAN. Senator Hecht.

Senator HECHT. Thank you very much, Mr. Chairman.
Welcome, Mr. Chairman. Nice to have you here today.

Because of the time, I have a statement which I would like to be included in the record but I'm very anxious to hear our distinguished witness today. With all the unrest around the world, I think some reassuring words would be of great benefit, far more than my statement for the record.

I also have a statement of Senator Karnes to be inserted in the record.

[The complete prepared statements of Senators Hecht and Karnes follow:]

STATEMENT OF SENATOR HECHT

Senator HECHT. Thank you Mr. Chairman. I want to commend you and Senator Garn on your efforts in formulating S. 1886. Having long been an advocate of legislation along these lines, the time has come when we must now make the difficult decisions which will allow for greater competition in our financial services industry.

However, while restructuring our system, we must take great care to protect the safety and soundness of our markets. As we have recently observed, the confidence the public has in our system, goes a long way in determining what happens in our markets. I think S. 1886 goes along way in providing the protection that the consumer demands and deserves.

I am also particularly supportive of applying "functional regulation" to the different types of services offered by a firm. Functional regulation is imperative in trying to obtain competitive equality in our financial system. S. 1886 takes many of the needed steps in obtaining functional regulatory framework.

As with all legislation, I see areas where this bill could be improved, and I look forward to hearing from our esteemed witness today to get his input on this proposal or any alternative proposals. Thank you Mr. Chairman.

OPENING STATEMENT OF SENATOR DAVID K. KARNES

Senator KARNES. Thank you Mr. Chairman. I want to join with my colleagues who have complimented you Mr. Chairman for your determination to move this process forward. It is the responsibility of this committee and this Congress to address the need for congressional action in the area of financial reform. As Chairman Greenspan expressed in his written testimony, it is our task to reconcile the outdated financial structure with the rapidly changing marketplace for financial services.

The Financial Modernization Act of 1987 introduced by Senator Proxmire and Senator Garn is certainly a step in the right direction. As we all know from previous legislative experience, the final product of this effort will probably be significantly different than the bill that we are discussing today and over the next several weeks. However, I think it is a good starting point and I want to take this opportunity to compliment Chairman Proxmire and Senator Garn in their efforts to achieve a bipartisan compromise. I also want to thank Chairman Greenspan for taking time to provide this committee with his insight on the need for financial reform. I certainly look forward to his testimony on this very important issue. Thank you.

The CHAIRMAN. Thank you, Senator Hecht.

Senator Sarbanes.

OPENING STATEMENT OF SENATOR SARBANES

Senator SARBANES. Thank you, Mr. Chairman. I want to join my colleagues in welcoming Mr. Greenspan to the committee. I'm obviously looking forward to his testimony.

There will be a number of proposals before the committee that address this issue of the structure of our financial institutions. It's obviously a matter of considerable import and I hope out of the course of these hearings we're going to be able finally to distill some knowledge.

I think it's very important, given the economic turmoil and uncertainty of recent weeks, that the question of safety and soundness, which it seems to me has always been an essential premise as we address the questions of structure in the financial sector, be given very careful attention.

We don't have to go too far back in our history to see the extraordinary economic impact which improper structuring can have and I think that the events of recent weeks have underscored the necessity of addressing that issue very carefully indeed.

Second, there's not much talk nowadays as we consider this matter about the question of the concentration of economic power, but I think it's a significant and relevant issue. And as we consider financial restructuring, we have to make some projections about what it's going to mean in terms of how economic decisions are made.

For many businesses and individuals, the access to credit is critical and how changes will impact on that access I think is another issue that needs to be very carefully looked at.

We have heard reference to the international dimension and I think it's obviously a relevant consideration. There seems to be a relative paucity of good, hard material on that. I don't know how much the Fed has available, but specifically in that area I think it might be very helpful if we could develop more extensive material on that dimension of this issue.

Mr. Chairman, those are only some of the questions that I think are at issue and that need to be looked at very carefully as we embark on this set of hearings and begin to relate them specifically to proposals that are before the committee. I see we have an extensive hearing list over the next couple of weeks and that will give us an opportunity at the end of that to see whether we've covered all the bases in terms of the kind of testimony I think we ought to have in order to address this problem adequately.

OPENING STATEMENT OF SENATOR SASSER

Senator SASSER. Thank you, Mr. Chairman.

Mr. Chairman, the legislation that we begin hearings on today is perhaps the most important that has been considered by this committee during all the years that I've been a member. I want to compliment you for your leadership, Mr. Chairman, and that of Senators Garn and Wirth and Graham, and I understand even Senators Cranston and D'Amato have now joined the fray and are putting forth significant legislation of their own.

Generally, I would say that reform and restructuring of the financial services marketplace is overdue. There have been vast changes that have occurred in the past few years and they have occurred largely without regulatory supervision.

Many of these changes have been to the detriment of the banking industry as we have known it traditionally over the years. Advances in technology, exploitation of loopholes, deregulation, developments on the international scene have had an impact, I believe, without an appropriate response from this body.

We need to begin to develop an orderly and realistic regulatory scheme for financial institutions that will take into account past market developments and have the flexibility to anticipate what might come in the future.

I think in fashioning that scheme we must not lose track of the goal to ensure maximum benefits to consumers and to permit the most efficient use of our financial resources. That's the reason for there being a financial services industry in the first place.

Also, we must not lose track of the goal of ensuring the safety and soundness of the banking system.

Now I think there are persuasive arguments for some expansion of bank powers and Mr. Chairman, these arguments are becoming more convincing every day. In particular, there's evidence that consumers, local governments and businesses could be benefited as a result of decreased underwriting costs and greater convenience should banks have some securities powers.

However, I think we will all agree there must be stringent regulatory safeguards. The Glass-Steagall Act, rightly or wrongly-I think rightly-was enacted as a response to the perception that bank securities activities were a factor in the crash of 1929 and the ensuing depression that it took us almost 12 years to come out from under. Indeed, we didn't recover from it until the Second World War.

Now we are faced with the unavoidable question of whether the existence of Glass-Steagall in 1987 prevented the stock market crash of some 6 or 7 weeks ago from wreaking havoc once again on the banking industry. Some say that it was the response of the Federal Reserve-and I'm pleased to say that the Chairman, Mr. Greenspan, learned from history and did not repeat the experience of 1929-but some say the response of the Fed and the existence of deposit insurance saved us this time and I think probably the jury is still out on that matter.

But another concern is the concentration of financial power that could develop in the economy if industries with great financial power were combined.

Mr. Chairman, you have pointed the way in exposing the danger of this concentration of financial power. Repeatedly throughout your distinguished career here in the U.S. Senate, you have sounded the alarm of the danger of undue concentration of financial power. And the bill that you offer places some limitation on mergers between large firms and I believe as you do that this country's economy has thrived over the years in part due to the fact that we have 14,000 separately owned commercial banks. Most of these banks are community-oriented; they are very, very important in States such as my own.

So in conclusion, Mr. Chairman, I wish to point out that this committee is doing what it set out to do when we passed the Competitive Equality Banking Act. We have reviewed the situation and we are now moving forward with significant banking legislation and I'm pleased that we are beginning with a witness as extraordinarily qualified as the Chairman of the Federal Reserve Board, Dr. Greenspan, and I'm looking forward to his testimony today. Thank you, Mr. Chairman.

The CHAIRMAN. Thank you, Senator Sasser.
Senator Heinz.

OPENING STATEMENT OF SENATOR HEINZ

Senator HEINZ. Mr. Chairman, I want to commend both you and Senator Garn, as I have on what seems like many other occasions, for holding hearings on this subject.

I join you in welcoming Alan Greenspan and I suppose what is different about this hearing than others is that there are some new and specific proposals before the committee. While much of the testimony I expect will be the same, nonetheless, there have been a large number of changes in the financial institutions industry over the last several years and I think the discussions that we will have in the course of these hearings will reflect those changes.

The market forces that I refer to are obvious. They have certainly blurred the line between certain lending activities and securities activities to the point where many of the legal barriers are, for all practical purposes, either artificial or useless.

In addition to that, regulatory and judicial decisions have accelerated the breakdown of those formerly clear lines.

I think it's also fair to say that with the passage earlier this year of the Competitive Equality Banking Act, this committee, including myself, pledged to undertake a comprehensive review of the entire financial institutions issue and I do commend all who have engaged in this work so far, but I do believe we have a good deal that we all need to learn.

The CHAIRMAN. Senator Graham.

Senator GRAHAM. Thank you, Mr. Chairman.

I would like to request permission to submit for the record my full opening statement.

The CHAIRMAN. Without objection, so ordered.

Senator GRAHAM. I express my appreciation to you for having scheduled this series of hearings. I think it is important that we look broadly and futuristically at the financial institutions structure in this country; that we have had too many instances in which we were reactive and focused on narrow immediate crises. We committed ourselves to the broader look. I believe we start today down that path and I hope that within the time constraints that were set out in the Competitive Equality Banking Act of 1987 that we will be able to complete this urgent obligation of the Congress to contin